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Types Of Development Finance Explained

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If you are a property developer or housebuilder looking for finance, you undoubtedly have come across the many names given to different types of development finance and associated terminology that you won’t find in any dictionary. This language can quickly leave you feeling completely confused and lost, as another roadblock hinders getting your project off the ground.

Here we break down the jargon and terminology so that you can understand what types of finance are available and how much you can borrow.

Senior Debt Development Finance

Senior debt development finance is the first change against an asset. The finance covers typically 100% of the construction costs and provides part of the money required to purchase the property or its existing estimated value. This type of development finance usually goes up to 50-65% of GDV.

First charge / senior debt – This term is used to describe the finance from the lender who first lends money against the asset (land and property). This does not mean that no other lender can lend against the same assets later on. If another lender does lend against the same asset, then this is called a second charge.

GDV – The gross development value is the development’s sales value once all works are completed, and building completion certificates are gained.

Senior debt development finance example: Developer XYZ has a project with a gross development value of £1,000,000, including £300,000 of estimated construction costs. The maximum development finance available is £650,000 (65% of GDV). This amount includes £300,000 development costs, leaving £350,000 of finance available to go towards purchasing the property.

Mezzanine Or Junior Debt Development Finance

Mezzanine development finance is a second charge against an asset. The mezzanine finance can usually take the overall lending up to 80% of GDV. The solution is often used by developers who want to top-up the level of finance on a development project, typically to improve cash flow and consider additional development projects.

Second charge / junior debt – This term is used to describe a second loan secured on the asset. The finance is offered by a different lender to the one who provided the first change. Should the development project fail for any reason, then the senior debt takes precedence over the junior debt.

Mezzanine development finance example: Developer XYZ has a gross development value of £1,000,000 and senior debt development finance of £650,000 (65% of GDV). Mezzanine finance of £150,000 (15% of GDV) is available, taking the total lending to 80% of GDV.

Stretched Senior Debt Development Finance

Stretch senior development finance is a first charge loan like a senior debt. However, it offers lending to the value of senior debt and mezzanine debt combined, typically 70-80% of GDV. The benefit to the developer here is that there are fewer associated costs, with one set of lawyers and one valuation, which also speeds up the process for the finance being approved.

Stretched senior debt development finance example: Developer XYZ has a gross development value of £500,000. The finance available equates to £375,000 (75% of GDV).

Development Finance With BLG

Our expert financial advisers and support team are ready to answer any questions you may have. Contact our team today to find out how you can get the finance you need for your development project.

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"A challenging site like no other with every inch of the plot being built on and 12 apartments built-out through a driveway 2.5m wide off of a main high street with limited access rights, not to mention all the complexities associated with 13 Party Wall Agreements. Most lenders would not have had the vision for the scheme or the confidence in Spiller Builders to build out the scheme.  I just wanted to say how helpful the entire BLG team have been during the build. A very approachable and knowledgeable team, with a “can do” approach to lending. We will be looking to do more business with you for sure."

“We have used BLG for development finance for over 8 years. During that time we have found their knowledge and expertise in the property development industry to be second to none. Their loan process, pragmatic and flexible approach to lending and flexibility when required has supported our business needs throughout the period and provided us with support to deliver new homes in Bristol and the surrounding areas.”

“As property developers you never know the curve balls that you may get and a project that is great on paper may prove a bit more tricky.  This happened to us on a project that BLG have funded and throughout they have supported us.  Our business likes to be collaborative and when we hit those tough moments it really felt like we were working as a team with BLG.  If you have a decent project you can get it funded, but what you really need is a business that is there to support and advise you as well.  For us on this project it was BLG.”

“I approached BLG Development finance with an opportunity I had in Chesham, Buckinghamshire, to build 5 new build houses in 2021. My main contact was Anil Bains who is a Director covering Asset Management. Within very quick timescales, BLG provided me with indicative quotes in regards the finance levels they could offer me. Having considered those levels, I requested a valuation to be carried out which again was dealt with swiftly. We proceeded to completion. The build went very smoothly with monthly monitoring being carried out by BLG and monthly drawdown requests dealt with in a very timely manner. Due to a difficult time generally in the market in regards selling, I was in need of a six-month extension to the loan which again was appraised very quickly and granted. Having dealt with numerous funders over the last 20 years, I can only speak highly of my personal experience with BLG and would very confidently work with them again on any future projects. “

"From our side it has also been a pleasure working with BLG and the team there. We have found you easy to deal with, proactive in resolving any minor issues that have arisen through the project and shown great flexibility in working with us as a partner. We will certainly like to work with you on future partners."

“I really appreciate your hard work. We really like the way you communicate & I must say I haven't seen many people who are that approachable.”

“A very efficient processing team, dealing with the DD once deal credit approved, through to completion”

“Many thanks for your efforts on this one and getting it approved and sorted so swiftly, very much appreciated. I am sure I will be speaking to your over the coming months.”

“We had other funding options, but chose to use BLG again, as we work well with the team, who always provide very clear information and advice with a friendly approach throughout the funding process. Very efficient and always very helpful.”

“Many thanks Anil, it’s been a real pleasure working with BLG so far.  We’re lining up the next project too”

“We would recommend all staff we have dealt with at BLG, as we are very satisfied with the team and the initial offer/terms presented, then you and the funding team, through to the draw down team at valuation stage.”

“All documents are clear and the way you keep clients informed, all the way along the funding process, is refreshing for us”

“With regard to what should be improved at BLG, we work with many lenders in our business and we do not get the help and response we have had on the two projects with all at BLG on our funding for our developments.”

“We would particularly mention Dave Edwards and Tom Pitts as being central to having a smooth working relationship and being positive and helpful at all times. Their guidance in helping us navigate the project from inception to completion was invaluable. As was their patience, particularly at the beginning. We look forward to many future projects with the BLG team.”

“We would like to express our appreciation for your support on our development in Bristol. We were very pleased that, from the outset, you shared our vision of the project to convert a dated but classical building, that had outlived its usefulness as a school, into unique luxury apartments with views overlooking the city. We found our dealings practical and streamlined. Monthly payments were processed in an efficient and timely manner.”

“BLG are very good at communicating with clients and all documents are very clear and all at BLG are always happy to help.”

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