Loans and finance often seem very complex to people who aren’t familiar with the subject.  However, property development loans often seem the most complicated of all.  Why should this be?

There are probably three main reasons why property development loans seem so complicated.

1. In the first place, there are so many different options for obtaining property development loans. For instance, you can approach your bank.  Loans are usually available at a reasonable rate, although you won’t necessarily get the most competitive product, and a large deposit will be required.  There are also increasing numbers of specialist lenders in the property development market.  They will often provide a higher loan-to-project ratio, so you won’t need such a big deposit, but interest rates are likely to be higher.  In addition, experienced lenders can often take advantage of mezzanine and equity finance, using investors on the open market.

2. Secondly, there are so many different types of lender for property development loans, and so many different factors that influence the lenders, that it can be hard to know where to start looking.  For instance, some lenders are restricted to certain geographical areas.  Some rule out certain types of property, e.g. very old property, or properties that have been used for specific purposes.  Others again rule out inexperienced developers.  Other factors that influence the lender will be the potential profitability of the project and the viability of the business plan.

3. The third reason is that there are probably more pitfalls involved in property development than in any other type of project, thus making the risk level higher.  For instance, the market may suddenly change before a project is completed.  Contractors or subcontractors could, and frequently do, go out of business.  Builders may turn out to be doing poor quality or substandard work which may make the final project non-viable.  Unexpected problems could be found in the site, such as severe pollution.  Or time/cost projections could turn out to be wildly unrealistic.  Delays can arise for other reasons, such as exceptionally bad weather or a cash-flow problem. 

The property market is uncertain and unpredictable at the best of times, in all sorts of ways.  Lenders of property development loans have to consider all sorts of factors before deciding whether and how much to lend, and this makes the business of applying for property development loans seem complicated and bewildering.  Rather than trying to negotiate it all on your own, you should start by seeking the services of a specialised broker, who can help you know where to start.