When it comes to property development, securing the right finance is just as important as finding the right site. Whether you’re building from scratch on unowned land, converting existing properties or managing a mixed-use scheme, having the appropriate funding structure in place can be the difference between success and a stalled project.
In this article, we will explore some of the most suitable finance options for property developers in the UK, looking at when and why they might be useful.
Development Finance
A staple option for new builds and major projects, development finance offers short-term funding typically used to cover land purchase and construction costs. Funds are released in stages aligned to construction milestones – a process known as ‘drawdown’ – which ensures lenders manage risk and developers only draw what they need.
If you’re exploring how to finance a property development project, this is often the go-to solution for both residential and commercial builds. Development finance is flexible and fast, making it ideal for phased construction projects with a clearly defined exit strategy, such as unit sales or refinancing onto a long-term facility.
Bridging Finance
Bridging loans are short-term loans designed to ‘bridge the gap’ between an immediate need and a more permanent form of financing. They’re popular among developers needing to move quickly – whether to secure a site at auction or cover cash flow while waiting for planning consent.
If you’re wondering how to get finance for property development that requires immediate action, bridging finance is one of the most efficient tools. It helps developers capitalise on time-sensitive opportunities where traditional funding routes would take too long to arrange.
Mezzanine Finance
Mezzanine finance is a hybrid loan option that sits between senior debt (primary funding) and equity. It’s used to top up funding where developers want to reduce the amount of their own capital in a project. While interest rates are higher, it allows for greater leverage without diluting ownership.
For developers aiming to raise finance for property development on a larger scale, mezzanine finance can provide an additional layer of capital to help bridge funding gaps. It’s especially useful in high-margin projects where retaining equity is as important as funding the build.
Stretch Senior Loans
Stretch senior loans offer higher leverage than traditional senior debt by incorporating some characteristics of mezzanine finance. This option allows experienced developers to access more funding under a single facility, simplifying the capital stack and potentially reducing the overall cost of finance.
This can be an ideal route for developers considering how to finance a small property development with limited equity. The convenience of a single lender relationship and the potential for increased borrowing capacity makes it attractive for those scaling up their operations.
Joint Venture (JV) Funding
Joint ventures are where a financial backer teams up with a developer to fund a project. The investor provides the capital, while the developer contributes expertise and management. Profits are split according to the agreement, and often no loan is involved.
If you’re exploring how to raise finance for property development but have limited cash or assets, a JV partnership may be the answer. It allows you to undertake larger or more ambitious projects than might otherwise be possible, provided you can deliver the development expertise.
Senior Debt from High Street Banks
Traditional bank lending remains a route for some, particularly where the project carries lower risk and fits within tighter lending criteria. However, the process can be slower and less flexible than specialist lenders.
Developers exploring how to finance property development through conventional channels may find that banks offer competitive rates but limited scope for complex or speculative projects. These loans are best suited to experienced borrowers with strong financial profiles and pre-let agreements in place.
Equity Investment
Equity investment involves raising capital in exchange for a share of the project or company. It’s not a loan, so there’s no requirement to repay capital or interest. Instead, investors share in the project’s profits.
This method suits developers working out how to finance a property development project with high potential returns. While you sacrifice a portion of future profits, you reduce financial pressure and avoid the burden of loan repayments, which can be critical in early-stage developments.
Personal or Private Funding
Some developers use their own capital or borrow from private individuals or family offices. While this provides flexibility and fewer hoops to jump through, it often lacks the scale and structure of formal development finance.
For those asking how to finance a small property development, personal funding may be the most straightforward option. It works well for first-time developers and small-scale conversions or refurbishments where the funding requirement is relatively modest.
Peer-to-Peer (P2P) Lending
P2P platforms match developers with private investors. While still relatively niche, they are becoming more common as technology makes alternative lending easier. However, costs can vary and due diligence is essential.
If you’re new to development and seeking how to get finance for property development with limited access to traditional routes, P2P lending can provide an alternative. Many platforms are tailored for smaller projects, giving early-stage developers a practical starting point.
Final Thoughts
There is no universal ‘best’ finance option – it depends entirely on your project, experience and appetite for risk. What is important is matching the funding solution to the project lifecycle, ensuring it’s structured to support your cash flow, protect your equity and deliver the best return. At BLG Development Finance, we understand that successful developments need more than money – they need the right funding partner. Speak to us about how our specialist finance solutions could help support your next project.
