by David Khan | Dec 5, 2024 | Advice
Securing financing for a residential property development can be a complex and competitive process. Whether you’re a seasoned developer or just starting out, understanding the key factors that lenders consider when approving a residential property loan is crucial to increasing your chances of success.
In this blog, we’ll explore the main criteria lenders like us here at BLG Development Finance look at, including project viability, developer experience and financial health. While considerations will vary lender to lender, in general these are the sorts of things you should be aware of in terms of how residential development finance lenders will determine if they want to progress with your proposal.
1. Project viability
One of the most important factors a lender will evaluate is the viability of the project itself. Lenders need to be confident that the development will be completed on time, within budget, will generate the expected returns and be profitable for the developer. To accurately forecast this viability, us lenders will look at:
Feasibility studies and market research
Lenders expect a thorough feasibility study, which includes market research to show there’s demand for the project. This could include analysis of local property prices, rental yields and demand for housing in the area. The more convincing the research, the higher the chance of securing funding.
Planning permissions and approvals
Lenders will want confirmation that the development has the necessary planning approvals in place, and that the project complies with any local regulations. If planning permission is still pending, the lender is like to be more cautious to accept the terms of the project, or may require a higher level of equity before lending.
Cost estimates and budgeting
Lenders will want to understand the total cost of the development, including land acquisition, construction and contingency costs. We would also assess whether these costs are realistic and backed by a detailed budget. A comprehensive breakdown helps reassure lenders that the project won’t run over budget, which could increase the risk of loan default.
Exit strategy
While you may not want to consider what might happen if your residential development plan encounters some unforeseen obstacles, lenders do! We want to know how and when the loan will be repaid, even if the project may not look like it will be completed. So you should have a clear exit strategy in place such as selling the completed homes, renting them out for long-term income or even refinancing once the project is finally completed.
2. Developer experience and track record
As experienced residential development finance lenders, we understand the importance of a proven track record. Lenders prefer to work with developers who have a history of successful projects, making the developer’s experience and track record a critical factor in their decision-making process. Key aspects lenders consider include:
Previous projects
The only way to learn is by doing, which is why lenders like ourselves will review your development history to assess whether you have successfully completed similar projects in the past. Having a thorough portfolio of completed residential developments shows lenders that you understand the process, timelines and challenges involved in fulfilling your obligations in meeting lender criteria and paying back your loans, ideally the project will be similar to one you have already completed in terms of size and complexity.
Developer reputation
A developer’s reputation within the industry can have an influence of some lender’s decision-making. Lenders may seek references from past partners, contractors or investors to verify your ability, as the developer, to meet deadlines and deliver a quality project.
Experience with financing
A developer’s familiarity with securing funding and managing large-scale projects is a significant factor. Developers who have navigated the financial and regulatory challenges of previous projects are typically seen as lower risk, and thus more likely to receive their proposed financing.
3. Financial health and stability
The financial health and stability of both the developer and the development company are crucial factors lenders assess when deciding whether to approve a loan, with lenders typically examining the following:
Personal and business credit history
The creditworthiness of a developer, in terms of both their personal and business credit scores, will be looked at by lenders. A solid credit history demonstrates financial responsibility and the ability to repay loans. A poor credit history or significant will likely raise concerns for lenders.
Equity contribution
Developers are usually required to contribute a percentage of their own equity to their project, typically between 20 – 30%, however this will vary depending on which lender you go with. We will want to see that you have made a sizable financial commitment and are therefore actively invested in the success of the project. So, by putting in more equity, the lower the perceived risk by the lender.
Liquidity and cash flow
Lenders will scrutinise your available liquidity and cash flow to ensure you can manage unexpected expenses or delays during the construction process. A developer with a strong cash flow is more likely to weather any financial challenges that arise during the project.
Financial projections and business plan
A well-prepared business plan outlining projected revenues, expenses and profitability plays a key role in alleviating lender concerns about preparedness and diligence, increasing the likelihood of securing funding. Financial projections should be grounded in realistic assumptions, not inflated ideals and should align with long-term market conditions.
4. Loan-to-Value (LTV) ratio
The Loan-to-Value (LTV) ratio is another crucial factor in securing funding, as this represents the proportion of the total project cost that a lender is willing to finance. A lower LTV ratio is generally seen as less risky, as it means developers are investing a larger share of their own capital in the project.
Lenders will typically prefer an LTV ratio of around 50 -70 % for development loans, however this can vary depending on many of the above points including the project’s risk profile, the developer’s experience and the policies of the lender. For more complex or high-risk developments, we may require a lower LTV ratio or higher interest rates to compensate.
Conclusion
When applying for a residential property development loan, lenders evaluate factors such as project viability, the developer’s experience, financial health, and the LTV ratio. Addressing these thoroughly in your application and ensuring your project is well-planned can therefore greatly improve your chances of securing funding.
by David Khan | Sep 9, 2024 | Advice
If you’re a small to medium-sized property developer in the UK, navigating the financial landscape can be challenging, especially in these uncertain economic times. At BLG Development Finance, we’re committed to helping developers like you grow and thrive. One of the ways we do this is through the Growth Guarantee Scheme (GGS), a British Business Bank and government-backed initiative designed to support UK businesses by improving access to finance. But how exactly does this scheme work, and what can it offer you as a developer? In this article, we will explore all this and more to help you gain a more certain understanding of the Growth Guarantee Scheme’s workings.
What is the Growth Guarantee Scheme?
The Growth Guarantee Scheme (GGS) is the successor to the Recovery Loan Scheme and was launched in July 2024. Its primary goal is to provide UK small businesses with the financial backing they need to invest in growth. For property developers, this means access to more favourable loan terms that can help you push your projects forward with confidence.
At BLG, we’re proud to be accredited by the British Business Bank to offer development finance under the GGS. This accreditation allows us to provide our clients with a government-backed guarantee on loans, helping to reduce the risk associated with borrowing and making it easier for developers to secure the funding they need.
How Does the Growth Guarantee Scheme Work?
1. Loan Amount and Eligibility
Under the GGS, BLG can provide guaranteed loans whereby up to £2 million per business group for those outside the Northern Ireland Protocol. Higher value non guaranteed tranches up to £15m are available. If your business falls within the Northern Ireland Protocol, the maximum is £1 million. It’s worth noting that if you’ve previously taken out loans under schemes like CBILS, CLBILS, BBLS, or RLS before June 30, 2024, this won’t prevent you from accessing the GGS. However, it may impact the total amount you can borrow.
2. Loan Terms
We offer loans with terms typically ranging from 12 months to 2 years, giving you the flexibility to align your repayment schedule with your project timelines.
3. Interest Rates and Fees
Interest rates and fees under the GGS vary based on the specifics of your lending proposal. At BLG, we always strive to offer the best possible terms, taking into account the benefits of the government guarantee. This ensures that you receive competitive pricing tailored to your project’s needs.
4. Personal Guarantees and Security
One of the key aspects of the GGS is that personal guarantees may be required at our discretion, consistent with our usual lending practices. However, it’s important to note that your Principal Private Residence cannot be used as security for these loans. This provides an added layer of protection for you as a borrower.
5. Government-Backed Guarantee
The GGS offers BLG a 70% government-backed guarantee against the outstanding balance of the facility after our normal recovery process is completed. While this significantly reduces the risk for us as a lender, it’s important to understand that you, the borrower, remain 100% liable for the debt. This guarantee reduces the risk for BLG and allows BLG to offer a high LTV at a competitive price.
6. Eligibility Criteria
To qualify for the GGS, your business must meet certain criteria:
- Turnover: Your business should have a turnover of up to £45 million.
- UK-Based: Your business must operate within the UK, with at least 50% of your income generated from trading activity.
- Viability: We need to be satisfied that your business has a viable proposition.
- No Financial Difficulty: Your business should not be in relevant insolvency proceedings or considered a business in difficulty.
- Subsidy Limits: You must confirm that receiving a GGS-backed facility won’t push your business over the allowed subsidy limit from publicly funded programs.
7. Application Process
When applying for a GGS-backed facility with BLG, you’ll need to provide specific documents that demonstrate your eligibility and the viability of your business. This typically includes financial statements, business plans, and other relevant documentation. Our team will guide you through the process, ensuring that you understand each step and have the support you need to complete your application.
Why choose BLG for your Growth Guarantee Scheme loan?
At BLG, we specialise in providing tailored property development finance for UK SME developers. With our accreditation under the Growth Guarantee Scheme, we offer flexible, property-secured loans designed to help your business thrive in a challenging market. We’re committed to supporting British businesses and are here to guide you through the financial options available under the GGS.
Interested in learning more or ready to apply? Contact us today to discuss your needs and see how BLG can support your business growth. Our team is here to help every step of the way.
by David Khan | Sep 9, 2024 | Advice
When embarking on a property development project, securing the right financing can be a make-or-break factor. At BLG Development Finance, we’re committed to supporting UK SME property developers through every step of their journey. That’s why we’re proud to offer financing under the Growth Guarantee Scheme (GGS), a British Business Bank and government-backed initiative designed to help businesses invest and grow. If you’re considering applying for the GGS, you may be wondering whether your project is eligible. In this blog, we’ll break down the types of projects that qualify for financing under the Growth Guarantee Scheme via BLG.
What Types of Projects Qualify for the Growth Guarantee Scheme?
The Growth Guarantee Scheme loans that BLG offer is designed to support a wide range of property development projects. Here are the key criteria that your project must meet to be considered eligible:
1. Residential and Commercial Developments
BLG Development Finance specialises in providing loans for both residential and commercial property developments. Whether you’re working on a new housing development, a mixed-use project, or a commercial property, these types of developments typically qualify under the GGS. The scheme is particularly beneficial for developers looking to take on projects that might have previously been out of reach due to funding limitations.
2. UK-Based Projects
To be eligible, your project must be based in the UK. The GGS is designed to support UK businesses, so it’s essential that your development is located within the country. Moreover, your business must generate more than 50% of its income from trading activity within the UK.
3. Projects Undertaken by Viable Businesses
The Growth Guarantee Scheme is aimed at supporting viable businesses that have a strong potential for success. As part of the application process, BLG will assess your business’s viability, ensuring that you have a sound business plan and the capability to complete the project successfully. This includes not being involved in relevant insolvency proceedings.
4. Projects Within Subsidy Limits
Because the GGS is a government-backed scheme, there are limits on the amount of subsidy your business can receive. If your project has benefited from other publicly funded programs, this may impact the total amount you’re eligible to borrow under the GGS. It’s important to provide written confirmation that the GGS facility won’t cause your business to exceed these subsidy limits.
5. Adherence to Sector Exclusions
Certain sectors are excluded from the Growth Guarantee Scheme. For example, banks, insurers, public sector bodies and state-funded schools are not eligible. However, property developers – especially those working on residential and commercial projects – are well within the scope of the scheme.
What Isn’t Eligible for the Growth Guarantee Scheme?
While the Growth Guarantee Scheme offers broad support for property development projects, it’s important to note what isn’t eligible. BLG does not offer cashflow loans under the GGS. The Growth Guarantee Scheme via BLG is strictly for development finance, meaning the funds must be used for specific property development activities.
Additionally, as stated above, certain businesses classified under specific sectors such as banks, insurers and public sector bodies, are not eligible for GGS-backed facilities.
How to Apply for the Growth Guarantee Scheme
If your project aligns with the criteria mentioned above, the next step is to apply for financing under the Growth Guarantee Scheme. At BLG, we pride ourselves on our streamlined application process, which involved guiding you through every step, from initial inquiry to final approval.
To get started, you’ll need to provide certain documents that meet our Lending Criteria. Our team will also conduct standard credit and fraud checks to ensure the legitimacy and viability of your project.
Get in Touch with BLG Development Finance
At BLG, we’re committed to helping UK SME property developers access the funding they need to bring their projects to life. If you’re interested in learning more about how the Growth Guarantee Scheme can support your property development, contact us today. Our team is ready to discuss your specific needs and help you secure the financing that’s right for you.
by David Khan | Aug 7, 2024 | Advice
In today’s property development landscape, integrating green building and sustainable design principles isn’t just an ethical or environmental choice; it’s a smart financial strategy. Green buildings reduce the overall impact of the environment, by incorporating energy efficiency, water conservation and air quality. For property developers, whether focused on residential development or commercial projects, the financial advantages of adopting sustainable practices are becoming more and more compelling and multi-faceted.
Reduced Operating Costs
Green buildings typically have lower operating costs due to their energy-efficient design. These structures often utilise advanced insulation, energy-efficient windows, and high-performance solar panels that significantly reduce energy consumption. According to studies, green buildings can see a reduction in energy use by up to 30-50%, leading to substantial cost savings over the life of the building.
Higher Property Value & Marketability
Properties with sustainable design features often yield higher prices in the market. Buyers and tenants are increasingly aware of the benefits of green buildings, such as lower utility bills, healthier living environments, and reduced environmental impact. This heightened demand translates into higher resale values and rental rates, ensuring a better return on investment for developers.
Increased Financing Opportunities
Financial institutions are progressively recognising the long-term value of green buildings. Property developers can often access more favourable financing terms for sustainable projects. Some lenders offer lower interest rates or additional funding options for developments that meet certain green building standards. Bridging loans and other property development finance options can also be more accessible for projects demonstrating a commitment to sustainability.
Attractive Incentives & Grants
Governments and local authorities frequently provide financial incentives to encourage green building practices. These can include tax rebates, grants, and subsidies aimed at offsetting the initial costs of sustainable materials and technologies. Leveraging these incentives can significantly reduce the upfront investment required for green projects, improving overall financial feasibility.
Enhanced Tenant Retention
Green buildings are often more attractive to tenants, particularly in the commercial sector. Businesses are increasingly looking to occupy spaces that align with their corporate sustainability goals. This can lead to higher tenant retention rates and reduced vacancy periods, ensuring a steady income stream for property owners.
Long-term Resilience & Risk Mitigation
Sustainable buildings are designed to be more resilient to environmental challenges, such as extreme weathers. By incorporating features like improved insulation, natural ventilation, and sustainable water management systems, these buildings are better equipped to handle the impacts of climate change. This resilience translates into lower repair and maintenance costs over time, further enhancing the financial stability of the investment.
Improved Health & Productivity
Incorporating green building elements like natural lighting, improved air quality, and non-toxic building materials can significantly enhance the health and well-being of occupants. For commercial properties, this can lead to increased productivity and reduced absence, making these spaces more desirable to businesses and organisations.
In conclusion, the financial benefits of green building and sustainable design are substantial. For property developers leveraging a range of funding options, from residential development finance to commercial development finance and bridging loans, incorporating sustainability into projects not only supports environmental goals but also enhances financial performance. By reducing operating costs, increasing property value, and unlocking new financing opportunities, sustainable development stands out as a wise and profitable investment strategy.
by David Khan | Jun 26, 2024 | Advice
Incorporating sustainable and green practices into development projects is not only beneficial for the environment but also enhances the long-term value and appeal of the project. As the demand for eco-friendly buildings and sustainable developments increases, adopting these practices can give developers a competitive edge. Here we explore key strategies for integrating sustainability into development projects and highlight the role of development finance providers, like BLG, in supporting these green initiatives.
The Importance Of Sustainable Development
Sustainable development focuses on minimising the environmental impact of construction and ensuring the efficient use of resources. The benefits of incorporating sustainable practices include:
- Environmental Protection: Reducing carbon footprints and conserving natural resources.
- Cost Savings: Lowering energy and water consumption, leading to long-term savings.
- Market Appeal: Increasing the value and marketability of properties as consumers become more environmentally conscious.
- Regulatory Compliance: Meeting or exceeding government regulations and standards for green building.
Strategies For Sustainable Development
Energy Efficiency
- Renewable Energy Sources: Incorporate solar panels, wind turbines, or geothermal systems to harness renewable energy.
- High-Efficiency HVAC Systems: Use heating, ventilation, and air conditioning systems that consume less energy.
- Insulation and Windows: Install high-quality insulation and energy-efficient windows to reduce heating and cooling needs.
Water Conservation
- Low-Flow Fixtures: Install low-flow taps, showerheads, and toilets to reduce water usage.
- Rainwater Harvesting: Implement systems to collect and use rainwater for landscaping and non-potable uses.
- Smart Irrigation Systems: Use irrigation systems that adjust based on weather conditions to prevent overwatering.
Sustainable Materials
- Recycled and Reclaimed Materials: Use recycled or reclaimed materials for construction to reduce waste.
- Locally Sourced Materials: Source materials locally to reduce transportation emissions and support local economies.
- Sustainable Timber: Use certified sustainable timber for construction.
Waste Reduction
- Construction Waste Management: Develop a plan to recycle and reuse construction waste.
- Modular Construction: Utilise modular construction techniques to minimise waste and increase efficiency.
- Deconstruction: Plan for the deconstruction of buildings to facilitate recycling of materials at the end of their life cycle.
Indoor Environmental Quality
- Natural Lighting: Design buildings to maximise natural light and reduce the need for artificial lighting.
- Air Quality: Use low-VOC (volatile organic compound) materials to improve indoor air quality.
- Green Spaces: Incorporate green spaces and vegetation within and around buildings to enhance air quality and provide recreational areas.
Partnering With Development Finance Provider BLG
Incorporating sustainable practices often requires additional upfront investment. Partnering with a development finance provider like BLG can help secure the necessary funding to implement these green initiatives. We offer a wide range of funding options, including residential development finance and commercial development finance and bridging loans property development. Ensuring your development projects not only meet environmental standards but also achieve financial viability. Our expertise in finance helps developers navigate the complexities of funding eco-friendly projects and maximising long-term returns.
Benefits Of Green Financing With BLG
- Flexible Financing Options: Customised financing solutions to meet the specific needs of sustainable projects.
- Expert Guidance: Professional advice and support throughout the development process to ensure the successful implementation of green practices.
- Enhanced Project Value: Financing that adds value to projects by enabling the incorporation of the latest sustainable technologies and practices.
Incorporating sustainable and green practices into development projects is essential for creating environmentally responsible and economically viable buildings. By focusing on energy efficiency, water conservation, sustainable materials, waste reduction, and indoor environmental quality, developers can contribute to a healthier planet while enhancing the appeal and value of their projects. Partnering with a trusted development finance provider like BLG ensures that these initiatives are financially supported and successfully implemented, paving the way for a greener future in the development industry.
