Property Development Finance – How To Minimise the Risks

If you have already tried getting hold of property development finance, you won’t need telling that it doesn’t just fall into your lap. Banks and other lenders need a lot of convincing, especially now that banks themselves have less money to hand out.

Why is this? Obviously, a development project carries all sorts of risks. There are several points in the process where a project has the potential to go wrong, go over budget or seriously exceed the time schedule.

So how can you minimise the risks of things going wrong or of losing your money? The secret lies in seeing the property development project as a whole right from the start. You need to have a clear view from the beginning of what you are aiming at, rather than just taking it one stage at a time and hoping for the best. But how do you do this?

  1. First, set up a complete project plan before you do anything else. Identify each task at each stage of the project life-cycle. Obviously you need to do this in consultation with your team of professionals – project manager, architect, surveyor, etc. – who will know exactly what needs doing at each stage. This will ensure that nothing is left out. Sometimes your lender or broker may have an expert who can help you with this so don’t be afraid to ask.
  2. Make a timetable. Estimate the length of time each task in the project plan should take. Again, be advised by your professional team. And do be realistic. Setting unrealistic deadlines could result in sub-standard work and could have a very negative outcome.
  3. Set a detailed budget. Breaking the project down into specific tasks will make it easier to budget for each task. Again, you will need professional help in this. And don’t under-estimate its importance. Not doing this will make it much more likely that project costs will go out of control This way, if there is a cost overrun, you can identify exactly where it is.
  4. Have a property development project manager. Throughout the project it is advisable to have a single individual to oversee the various contractors and their work. If they all have a single individual to report to, it will become obvious if tasks are being duplicated or omitted.


Remember that although it’s important to have a project plan, it’s also important not to be too rigid in sticking to it. It needs to be your servant not your master! Things can change over the life of a development project and some flexibility needs to be built in to the schedule. But if you want to maximise your chances of obtaining property development finance, it is very important to have a clear view of the entire project from the outset.

 

E Berry May 2008

Please note that the FSA do not regulate commercial loans or commercial mortgages

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