Development Finance

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Development Finance

WHAT IS DEVELOPMENT FINANCE?

Development finance serves as a short-term funding solution, typically spanning 6 to 36 months, aimed at facilitating the purchase and construction expenses related to residential or commercial development projects.

This financing option is versatile and can support various types of projects, including new builds, conversions, or refurbishments, whether it involves a single unit or multiple units across several phases.

At EFS, we provide a range of specialized development loans, each of which can be customized to suit your specific requirements, ensuring your development project receives the tailored financial support it needs.

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A DEVELOPMENT LOAN TYPICALLY CONSISTS OF TWO PARTS

The initial portion of the funding is typically allocated to facilitate the acquisition of the development site. This could entail purchasing land intended for the construction of new properties or acquiring an existing property slated for refurbishment.

The subsequent stage of the loan is designated to cover the expenses incurred during the construction phase of the project. These funds are commonly disbursed in stages rather than as a lump sum upfront. Payments are typically scheduled on a monthly basis as construction milestones are achieved.

THE FUNDING AVAILABLE

The amount of funding available is determined by a comprehensive valuation report, which provides three crucial figures:

ASSOCIATED FEES WITH DEVELOPMENT FIANNCE

there are typically additional charges associated with development finance. These charges include fees and interest for the loan, which can vary depending on several factors:

determine the extent of the charges

Amount Borrowed: The total sum borrowed from the lender will impact the charges incurred.

Percentage Borrowed: The percentage borrowed against the overall costs, which includes the current value and build costs combined, also influences the charges.

Loan Term: The duration for which the loan is required will affect the fees and interest rates applied.

These factors collectively determine the extent of the charges imposed by the lender for providing development finance. It’s essential to carefully review and understand the terms and conditions, including all associated charges, before proceeding with a development loan, something that will be explained in detail by our dedicated development team.

TYPICAL LOAN TERMS

Indeed, the duration of development loans typically ranges up to 24 months, although this timeline can vary based on the specific nature of the project being financed.

For Instance

A simple refurbishment project may necessitate a loan term as short as 6 months.

Conversely, a more complex endeavour such as a multi-unit new build might require the full 24-month duration.

The term of the loan is designed to accommodate the entire lifecycle of the project, from property acquisition and development to eventual sale or refinancing to settle the debt. It provides the necessary time for the various stages of the project to unfold, ensuring that the financing aligns with the project’s requirements and timeline.

USING AN INDEPENDENT MONITORING SURVEYOR (IMS)

During the active phase of a project, the building costs portion of the loan is typically disbursed in stages, often on a monthly basis. The amount drawn down each month is contingent upon the value of the work completed on-site during that period. This staged approach offers the advantage of allowing borrowers to pay interest solely on the total amount drawn at any given point in time.

To oversee the project’s progress and ensure it remains on schedule and within budget, an Independent Monitoring Surveyor (IMS) is engaged. Acting as the eyes and ears of the lender, the IMS monitors the project’s development, identifies any potential issues, and reports back to the lender accordingly. While the IMS represents the lender’s interests, the borrower is responsible for covering the costs associated with their services.

REPAYING YOUR DEVELOPMENT LOAN

These options provide flexibility for borrowers to choose the most suitable repayment strategy based on their individual circumstances and future plans.