Development Finance Market-Different types of finance & requirements of Lenders!

Investment or insurance broker or adviser conducting an interview with a smiling young couple as they plan their future investments

There are perhaps 60 or more lenders funding development schemes across the UK. It is very important to select the right lender for your circumstances so that the funding is matched as closely as possible to your needs. The experienced team at Key have access to an extensive database of the lenders operating in the UK, which enables us to select the most appropriate funding for your needs. Whilst there is no straightforward way to segment the market, we have attempted to do so on the following basis;
1. Prime Lenders-
These typically lend on the lowest rates, from 3.4%-6% per annum (all in) with fees for facility set up (typically 1.5%) plus valuation and legal fees. There may also be an exit fee of 1.5% on the debt outstanding. They generally require that you have experience of completing similar schemes as a developer (not just a contractor) and that you have 40% of the schemes total costs available from your own resources.2.
2. Secondary (specialist) Lenders
The above lenders typically fund schemes with a debt requirement of c.£400,000, so they are not looking to fund the smallest of schemes. Rates vary from 6%-9% per annum, plus set up fees (typically 1.5%) and valuation, legal, and scheme monitoring fees. They also charge an exit fee at 1.5% of the loan amount or perhaps 0.75% of GDV. These lenders will fund less experienced developers (generally expected to have some experience as a builder or contractor.
3. Tertiary Lenders-
This is pretty much every other lender in the market, and constitutes around 70% of the market place of available lenders. There is a wide range of specialisms and niches. Whilst experience in the sector is preferred, a case can usually be made for any credible individual, even with no experience. An individual attempting their first scheme will be expected to start with something modest, and most lenders will fund up to 65% of GDV, others up to 70% or more.
4. Mezzanine Finance-
These specialist lenders provide a strip of funding to supplement what you are putting into the scheme. They generally allow an experienced developer who does not have sufficient funds of their own to source funds from a prime funder at lower rates. The mezzanine funder will charge 2% per month on their money and take a 2nd charge over the site being developed.If yourself or your clients are considering any of the above schemes, then please call the friendly team at Key Commercial Finance Solutions Ltd who will be more than happy to assist further.