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Integrity Financial Groups, Inc. > Financial Education > Development Financing Overview: How To Get Development Financing?

Development Financing Overview: How To Get Development Financing

Development financing is like a special loan given to experienced builders and developers to help them get the money they need for building or fixing up homes, stores, or a mix of both. The lenders who provide this type of loan look at how much the property will be worth in the future before deciding on the loan amount. This helps builders and developers bring their construction plans to life.

Development financing is often granted to experienced builders and developers so that they can raise the capital to turn their building ideas into a commercial reality. Specialist development finance lenders will take the future value of the property into consideration when agreeing a loan. While a regular mortgage lender looks at the property’s current value, a development financing lender considers the value of the property once it’s fully built or renovated.

Development Financing Process

Here’s how the development financing process goes:

  1. You fill out an application, providing details like the site or property cost, development or refurbishment expenses, professional fees, and the time it will take to build.

  2. The lender offers terms based on the information and evidence you provide.

  3. They conduct credit searches on your current finances, experiences, and the development location.

  4. If the loan is approved, your project will then be monitored regularly by the lender.

How Development Financing Works:

Development financing is often used by builders and developers planning extensive projects and ground-up developments. For example, if approved, development financing could be used to cover both land purchase and building costs. A lender might finance 50% of a property purchase and 70% of the build meaning the developer would fund a much smaller amount up-front which frees up cash for unexpected expenses or other projects.”

Who Benefits from Development Financing?

 

Builders and developers commonly utilize development financing for large-scale projects and new constructions. If approved, this type of financing can cover both the land purchase and building costs. A lender might fund 50% of the property purchase and 70% of the construction, allowing the developer to contribute a smaller upfront amount. This frees up cash for unforeseen expenses or other projects.

What Documents Do I Need for Development Financing?

 

Because development financing involves considering the future value and marketability of the completed project, there is a significant amount of paperwork required for the application. The lender needs to assess the short-term loan repayment and the overall success of the project. The required documents include:

  1. Current property value (if owned) or purchase price
  2. Predicted end value of the project
  3. Build or renovation costs
  4. Development timeline
  5. Your experience resume (CV)
  6. Information about the professionals working on your project
  7. Copy of planning permission
  8. Building regulations compliance
  9. Details of any Section 106 agreements or planning restrictions if applicable

PROS AND CONS OF DEVELOPMENT FINANCING

Advantages of development financing:

  1. Enables you to secure capital.
  2. Offers rapid access to funds, potentially within 48 hours.
  3. Short-term loan commitment, preventing long-term financial obligations.
  4. Can cover expenses related to contractors and materials.

Disadvantages of development financing:

  1. You will need to submit thorough documentation.
  2. Fixed costs, like arrangement and exit fees, are part of the deal and may be higher compared to a commercial mortgage.
  3. Negotiations between you and the lender will determine the interest rate.

WHAT IS THE ROLE OF PROJECT FINANCING?

Development financing helps companies get money for growth opportunities, especially for large, long-term projects. It relies on the cash flows generated by the project to pay back sponsors or investors.

RISKS IN DEVELOPMENT FINANCING

Development financing comes with risks like changes in supply or demand, financial fluctuations, and operational issues. These risks can impact the success of the development.

Why Companies Use Development Financing

Companies, especially those with weak financial backgrounds, use development financing to fund big projects. It’s a way to secure funding without putting too much strain on their own finances.

Development Financing In Summary:

Development financing is a way for companies to fund large, long-term projects using a specific financial structure. It relies on the cash flow generated by the development to pay back the money used to build it. This approach is less risky for companies, making it a popular choice for funding significant projects.

Financial Platform

Deal Submission Form

Submit this request along with the following documents for review:

  • Non-Disclosure Agreement (NDA)
  • Organization Chart and Business Plan
  • Application
  • Key Personnel Bio’s/CV’s
  • Executive Summary (3-Page Maximum)
  • Budget & Proforma Model in Excel
  • Construction or Project Draw Schedule with Dates
  • Most Recent 30 days Verifiable Proof of Funds Statement or Letter
  • Sources and Uses of Funds
  • Appraisal and/or Feasibility Report (if, available)
  • Real Estate Owned / Facilities List


    About the author

    Dallin Hawkins brings over two decades of expertise within the finance sector, holding executive positions and distinguished as a top performer since 2003. Throughout his tenure, he has orchestrated and structured in excess of $60 billion in volume across diverse industries, including renewable energy, construction, transportation, manufacturing, mining, drilling, and oil and gas sectors. His adept negotiation skills and profound industry acumen have facilitated the successful management and funding of numerous intricate transactions. Leveraging foundational financing principles, Dallin consistently engineers structured and holistic funding solutions. His proficiency spans financial structuring, information technology, marketing, networking, and sales, underpinning his capacity to navigate multifaceted challenges with finesse. Moreover, Dallin's leadership extends beyond transactions, having personally mentored and overseen the development of countless sales executives. His guidance encompasses deal negotiation strategies, adept management of client expectations, and effective time management techniques tailored to the nuances of the finance domain. Notably, Dallin's recent financial venture stands poised to redefine and fortify the financial landscape through unparalleled growth trajectories.

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