Development Finance
What is Development Finance?
Development finance provides funding for construction projects from the ground up. This could range from building a single house to multiple properties or even a commercial unit.
If you already own the land outright, you may be able to access up to 100% of the build costs, released in stages as the project progresses. If you also need to purchase the land, lenders may fund up to 70% of the land’s purchase price in addition to the staged build costs.
- Key Features:
- Short to medium-term loan (usually 6 - 24 months)
- Funds released in stages ("drawdowns") as construction progresses, verified by surveyors
- Interest often rolled up (paid at project end)
- Best For:
- Property developers building new residential/commercial projects for sale
- Projects needing large upfront capital for land, labour, and materials
Benefits of Development Finance
Access to Large amounts of capital
- Construction projects (buying land, labour, materials, permits) require big upfront costs
- Development finance provides multi-million funding that many businesses can’t cover internally
Staged Release of Funds
- Money is drawn down in stages as the build progresses (after surveys/valuations)
- This reduces interest costs (you only pay on what’s drawn) and ensures funds are aligned with the project timeline
Cash Flow Management
- Businesses can keep working capital free for other operations rather than locking it all into one development
- Prevent “cash crunches” during lengthy builds
Leverage & Higher Returns
- Developers can start larger projects than their own cash reserves would allow
- Borrowing allows them to scale and potentially achieve higher profits on completion
Flexible Terms (Short- to Medium-Term)
- Usually 6-36 months, tailored to the project timeline
- Suits businesses with a clear exit plan (sell completed units or refinance with a mortgage)
Project Risk Sharing
- Lenders often conduct due diligence (surveys, monitoring)
- This acts as a safeguard, ensuring the project stays viable and attractive to investors
Rolling Interest
- Many lenders allow interest to be “rolled up” (paid at the end of the project)
- This frees up cash during construction when outgoings are already high
Is this the right funding solution?
If you are considering secured Development Finance as an option to raise additional capital, there is no shortage of lenders to choose from. However, the more you shop around the more confusing the choices become.
It is therefore advisable to seek impartial advice to guide you through the various options, so that you find the right solution at the appropriate rate.
Whatever reason it should ideally be the most appropriate solution to the business requirements, having considered all other available funding solutions.
Please note:
It is important to remember that the development loan is secured on the land and projected until the lender is repaid in full.
- Assets secured are at risk in the event of default
- The process involves a formal legal agreement between solicitors, which will incur associated fees.
Before choosing secured finance, you should have a clear idea of the legal implications and whether it is the right option. We can help guide you through what’s best for your business.
5 Steps for Development Finance
1
Get in touch
2
Meeting to assess your needs
3
Meet lender
4
In principal offer from lender
5
Accept offer & continue development or grow business
