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How do you finance a property development project, or what is Property Development Finance?

Most developers borrow money to finance their project, and such loans usually provides a lump sum towards the purchase of the land, followed by a specific amount made available to cover the “Costs to Complete” the project i.e. the build costs and any associated professional fees and costs. The Costs to Complete part of the facility are made available in tranches, and in arrears. So usually the developer would have to cash-flow the onset of the works, to add value to the site, so the lender can then reimburse these costs at pre-defined stages. Development finance therefore works in staged payments, in arrears.

Take a look at our FAQ’s section for more in-depth Questions & Answers on Development Finance.

Being a specialist in development finance since 2007, we are proud to boast perhaps the most expansive range of funders along with years of experience, giving us the necessary tools to pair you up with the right funder. Our panel of lenders includes High Street banks, Development Finance institutions, specialist lenders, family offices and private individuals.

More recently there has been a large number of specialist lenders move into the Development Finance marketplace, all with varying appetites and requirements, so it has never been more important to use the experience of a trusted broker like ourselves.

What varies from one Development Finance facility to another?

This can include the Loan to Value (or Loan to Gross Development Value) and Loan to Project Costs which a lender can provide, the costs of the facility (and any up-front or application costs), and the on-going administration of the facility such as Project Monitoring and facility draw-downs. In addition, other factors such as Personal Guarantees requirements, speed of transacting & professional fees can really separate one lender from another.

How do I get property development finance?

That’s where we come in. Once we have established your requirements and the case specifics, we can very quickly funnel down the options to usually a handful. To properly assess a project, a lender will need to see a detailed Financial Appraisal, Detailed Build Costs and a Cash-Flow, the Planning Consent (and accompanying plans/ drawings), an understanding of the procurement method (will you be using a Main Contractor on a Fixed Price JCT, or will you be building yourself, using your own team?), a schedule of the proposed accommodation (number of units, size, beds/ baths) and a breakdown of the proposed selling prices, to give your total Gross Development Value. We will package the details and make a presentation to the relevant lenders, who will then provide us with Heads of Terms, outlining what they are proposing to offer, and at what cost.

We can provide the most appropriate options for Senior Debt, Stretched Senior Debt, Mezzanine, Equity and even Joint Venture finance. So whether you are looking for the cheapest rates, or the highest leverage, we can help.

In addition to whole of market coverage, we have exclusive access to a number of private lenders and products which are simply not available via other brokers. The strong relationships we have forged with our lenders sets us apart from other brokers and makes us the number one choice for any developer looking for finance.


If you want a fast, flexible and reliable service, try
Positive Commercial Finance.


Frequently Asked Questions

Can I get a loan for land and construction?

Yes, you can. Typically, Senior Debt lenders can provide from 50% to 70% of the land costs in addition to 100% of the construction costs. Joint Venture lenders can actually provide 100% of the land costs and 100% of the construction costs.

What is a development loan?

It is a loan secured against a property or a site, used for the purchase or refinance of that property or site, and the construction or development of the property or site.

What is Commercial Property Finance?

It is a loan secured against a property, with the loan monies to be used for any business purpose.

What is construction finance?

It is finance raised for the purpose of constructing, building or developing properties. Such facilities are usually on a “draw-down” basis, where the loan is drawn in tranches, in arrears, in line with a pre-agreed build programme and draw-down schedule.

Are development loans drawn in arrears?

Yes. Works have to be done in advance of the funds being drawn. The caveat to this is a situation where the property or land has enough equity in it to allow the funder to allow a “Day 1” draw-down, to help cash-flow the start of the works. If the developer wants to borrow the maximum Loan to Value on Day 1, to help acquire or refinance the land or property, then it follows that the first draw-down from the build monies has to be in arrears, given the lender will already have been at their maximum LTV at the very start of the loan.

How often can I have a draw-down?

Draw-downs are usually at pre-agreed stages, in line with a build programme. This can vary quite significantly from lender to lender. For a more experienced developer, lenders can often be more flexible, with less monitoring required. However, the frequency of draw-downs is usually determined by the developers cash-flow constraints.

What does Loan to Value mean?

This is the loan amount as a percentage of the property value.

Do you have to put a downpayment on a construction loan?

Typically a Senior Debt lender will not/ cannot provide 100% of the purchase price, if land is being purchased, and so the borrower will need to put in a “deposit” of usually 30% to 50% of the purchase price. However, there are Joint Venture lenders who can provide 100% of all costs, provided the developer is sufficiently experienced and the scheme shows a strong enough profit margin.

What percent do you have to put down for a construction loan?

Typically 30% to 50% of the land purchase price, using a Senior Debt loan. Potentially zero, with a Joint Venture deal

What are the requirements for a construction loan?

The lender will need to fully understand the project, as well as being comfortable with the borrower. To assess the project itself, a lender will need to consider the land itself and the Title it sits on, the planning permission connected to that Title, the financial appraisal to assess all project costs, the main contractor, the construction method and build programme, and be confident in demand for the finished product. The necessary insurances and warranties will also need to be in place.

How much can I borrow?

A typical Senior Debt facility can provide up to 65% of the Gross Development Value (GDV), or 80% of Total Project Costs (whichever is lower). A Stretched Senior Debt facility can provide up to 75% of the GDV, or 90% of Total Project Costs. A Mezzanine loan facility can also provide up to 75% of the GDV or 90% of Total Project Costs, but on second charge basis behind a Senior Debt facility. A Joint Venture facility can provide up to 100% of Total Project Costs.

What is the Gross Development Value?

The sum of the aggregate value of the properties being built/ created.

What should be included in the Total Project Costs?

• Land purchase price & purchase costs (any SDLT, VAT) • Build costs • Build cost contingency (at least 5% of the build cost, ideally 10%) • Professional fees, including QS, architects, agents etc • Warranties/ Insurance • Professional Reports, including valuation, site investigation, rights of light etc. • Finance costs • Marketing costs • Any other costs, for example s106 or CIL • Legal fees both for purchase and sales

Do I need to have development experience?

For most lenders, yes, you do. However, this can sometimes be subjective and the definition of “experience” can vary from lender to lender. Some lenders might be happy with an architect doing their first development for themselves, whereas some might not. There are a number of specialist lenders who will consider first-time developers.

What happens if the houses I’m building don’t sell?

A few months before the development loan expires, and if the borrower was not confident in selling enough units to redeem the development loan, we would look to refinance to the more appropriate loan for the circumstances. Such loans are usually cheaper than a development facility, given all the construction risk will have passed. If the developer just needs an extra month or two to allow time for sales to complete, then we would request an extension from the existing development lender.

How long does it take for an application?

Typically it takes between 6 to 8 weeks from the point of accepting the lenders Heads of Terms or Decision In Principle. There are some lenders who can act much quicker, but often subject to how quickly the borrowers solicitor (and vendors solicitor) is able to act.

How quickly can you get me an offer?

Provided we have been given sufficient information, we can usually get a Heads of Terms or Decision In Principle with 24 hours. A Formal Offer of Finance, subject to Valuation and Legals, can then follow quite quickly after further due diligence by the lender, and often a site meeting.

Is it like applying for a standard mortgage?

No, in that the development lender is not looking for affordability, given you will not be asked to pay interest monthly. Of course the lender will need to conduct their due diligence on the project itself, and who they are lending the money to, but do no expect to have to go through the same process as a residential mortgage.

What is a Heads of Terms or Decision In Principle?

An initial indication from the lender as to how much they would be prepared to lend, and on what terms.

Will the loan amount be fixed?

A maximum facility amount is usually fixed. You do not have to draw the full facility amount, if you do not need to. Interest is only charged against the drawn sum. Watch out for some lenders though, who charge “non-utilisation fees”, which is a rate of interest applied to the un-drawn sum, usually on a monthly basis.

Can the fees be added to the loan?

The lenders arrangement fee is usually “included” within the loan, as is interest. The fees which a developer will have to cover out of his or her own pocket would the valuation fee, a Monitoring Surveyor’s report (if required), and then the lenders legal fees, given the borrowers solicitor will be asked to give a “legal fee undertaking”, to the lenders solicitor.

Do I have to pay interest monthly?

No. It is very unusual for a lender to expect a developer to pay interest monthly.

How do I pay a development loan back?

The lender will expect to take the full net sales receipt, from each sale, until they point that they are fully repaid. Alternatively, you could refinance once the properties are built.

Why should I use Positive Commercial Finance?

Our vast experience gives us the necessary tools to get you the best loan in the marketplace. We are FCA regulated and affiliated with the appropriate bodies. We are an Award-Winning commercial finance broker, and we DO NOT charge any upfront fees.

Can you arrange finance if I have a CCJ or adverse credit?

Yes, we can. Often it would be expected that any outstanding adverse is dealt with before the development lender advances any funds.

Do I need to have detailed planning permission?

Yes, you need to have Detailed planning consent to get a development loan. If you will only have Outline planning consent when you need a loan, you will actually need a Bridging loan, up until the point when you get Detailed planning consent.

What will it cost?

A development facility consists of the following: Arrangement Fee – anything from 0.5% to 2% Interest Rate – from 3% to 15% per annum, but typically 7% per annum Exit Fee – from 0.5% of the facility amount, to 1% of the Gross Development Value Professional Fees – valuation, Monitoring Surveyor, and legal fees.

Do I need to pay anything up-front?

We as a broker DO NOT charge anything up-front. Once you receive a lenders Decision In Principle or Heads of Terms, you might be asked to pay the lenders site visit fee (typically from £200 to £1,000). Alternatively, you might be asked to cover the cost of a valuation report. These are usually the “risk” costs. If the valuation report is satisfactory, the lender might require a Monitoring Surveyors report to assess the build costs. Once solicitors are instructed, you will then need to cover the lenders legal fees, as your solicitor will have to provide a legal fee undertaking.

What if the property gets down-valued?

Ultimately the lender is going to lend against the values reported in the valuation report. It is therefore essential not to be too bullish with values.

What if I decide I don’t want the loan?

No problem. Note that valuation fees cannot be refunded.

What happens if I want to repay early?

Great, but some lenders charge exit fees for early redemption. You only get charged interest on the amount you have drawn, for the amount of time you have borrowed it.

If there is already a mortgage against the land, can you still help?

Yes, we can.

What is Senior Debt finance?

It is development finance where the lender has a first charge.

What is Stretched Senior Debt finance?

It is development finance where the lender has a first charge, but often pushing the limits/ parameters of a more standard senior debt facility, to ultimately provide a higher loan amount.

What is Mezzanine finance?

It is development finance where the lender has a second charge, behind the Senior Debt lender. A mezzanine lender is taking a greater risk by “topping up” a Senior Debt facility, which is reflected in the pricing of Mezzanine finance.

What is Equity funding?

It is development lending which plugs the gap between what a Senior Debt lender (and/ or Mezzanine lender) can lend, and how much cash the developer has to contribute. Typically, Debt Finance can provide up to 90% of Total Project Costs. If a developer needs to borrow more than 90% of Total Project Costs, and therefore has less than 10% to contribute, then they would need some Equity input, usually in return for a profit share. Equity funding can often be unsecured. Equity funders can provide anything up to 100% of project costs.

Do I have to give a Personal Guarantee?

If you are applying in a company vehicle, then typically, yes. A lenders standard security package would include a first charge (or second charge) over the site, a Company Debenture, and Directors Personal Guarantees. Personal Guarantees, or PG’s, can vary from lender to lender. Some lenders only need PG’s to cover interest and cost over-runs, whereas other lenders will ask for a certain percentage of the build costs, or the loan amount. There are one or two lenders who do not require PG’s at all, or do not require them below certain Loan to Values.

What is an SPV?

It’s a Special Purpose Vehicle, i.e. a company specifically set up to undertake one project.

Do I have to use an SPV?

Not necessarily, but it does make more sense to do so. We recommend you take advice from your Accountant, on the most appropriate “vehicle” to use.

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