Development Finance,
Information
Development Finance – Key Information
Development finance is a type of funding specifically aimed at property developers to finance the construction, conversion, or heavy refurbishment of buildings. This can range from residential developments, commercial properties to mixed-use projects. Here are some key aspects:
- Purpose-Specific: It is tailored for the development of real estate projects, making it an essential tool for developers looking to start new projects or complete ongoing ones.
- Staged Drawdowns: The funds are usually drawn down in stages, aligned with the progress of the construction project. This helps manage cash flow efficiently and ensures that funds are available as needed.
- Interest and Repayments: Interest is typically rolled up or retained, meaning it is charged but not payable monthly. Instead, it accumulates and is paid at the end of the term or on sale of the developed property.
- Higher Loan-to-Value (LTV): Development finance can offer higher LTV ratios compared to traditional loans, sometimes up to 70% of the gross development value (GDV) or higher, depending on the lender’s criteria and the project’s viability.
- Risk and Reward: It’s considered a higher risk than traditional financing options due to its dependence on the successful completion and sale of the development project. However, it also offers the potential for higher returns on investment.
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