by David Khan | May 23, 2025 | Advice, Featured
Development finance can often feel like a bit of a black box. For seasoned developers, it might be familiar territory, but for those newer to the industry or stepping into larger projects, understanding how development finance loans work is crucial. In this article, we’ll explore how these loans function, who they’re for and what you need to consider when exploring development finance as a funding option.
What is Development Finance?
Development finance is a form of short-term lending designed specifically for property development projects. These loans provide developers and their partners with the capital required to purchase land and fund construction costs. Once the development is complete and sold or refinanced, the loan is then repaid, leaving the developer with the profit margin from the project after accounting for all development costs, interest, and fees. A key point on the product is that interest is typically rolled up and paid out from sales at the end of the project
Unlike traditional mortgages or commercial loans, development finance is structured around the build schedule and is usually released in stages rather than as a lump sum. This staggered funding approach is referred to as ‘drawdown’, and aligns the financing with specific construction milestones, allowing lenders to manage risk.
Types of Development Finance Loans
Development finance is not a one-size-fits-all funding solution. There are actually several types of development finance loans available depending on the nature and scale of the project.
Commercial Development Loans
Commercial development finance loans are tailored for the construction or redevelopment of business premises such as office buildings, retail spaces and industrial units. They focus on commercial viability, tenant demand and income yield.
Residential Development Loans
Aimed at developers looking to build new homes, flats and other residential-led mixed-used schemes, residential development finance is an extremely popular financing option in the UK. To determine viability, lenders will typically assess factors such as end-user demand, local market conditions and potential sales velocity.
Ground-Up Development Loans
As the name would suggest, this funding option is suitable for projects starting from scratch, such as building residential units on vacant and unowned land. Lenders will assess planning permission, construction costings, timelines and the project end value before releasing funds to developers enquiring on this type of project.
Refurbishment Loans
Refurbishment loans finance property upgrades, from minor renovations (known as light refurbishments) to major structural changes (known as heavy refurbishments). This funding solution is ideal for developers converting single homes into apartments or transforming outdated commercial spaces.
Bridging Loans
While not exclusively development finance, bridging loans can be used as a short-term funding option when timing is critical such as securing a property at auction, preventing a sale falling through, or taking advantage of time-sensitive opportunities before traditional financing can be arranged.
Stretch Senior Loans
Stretch senior development finance loans combine elements of senior debt and mezzanine finance to increase the total loan amount. They are ideal for experienced developers needing higher leverage but wishing to avoid layering multiple funding options.
Mezzanine Finance
Mezzanine finance fills the gap between primary loans and developer funds. It’s secondary debt, repaid after the main lender, with higher interest reflecting increased risk. This flexible funding enables developers to tackle larger projects without sacrificing more equity or cash reserves.
How Do You Obtain Development Finance?
The process of securing development finance is more bespoke and involved than applying for a high street mortgage. With higher risks and larger sums at stake, lenders conduct thorough due diligence and assess each project’s unique characteristics.
- Project proposal – You will need a detailed development plan including drawings, planning permissions and costings.
- Valuation and due diligence – The lender will commission independent valuations and assess the gross development value (GDV) of the project.
- Loan structuring – Funds are then released in tranches, aligned with each stage of the build.
- Legal work and drawdown – Once everything is agreed between lender and developer, funds are to be released as each phase is completed and certified.
Criteria for Loan Approval
Each lender is unique when it comes to criteria, and will assess applications based on their risk appetite, specialisations and internal policies. Understanding these variations in lending can be crucial when selecting the right financial partner for your project, but in general considerations include:
- Developer experience – Previous track record and ability to manage a build project
- Planning permission – Full planning consent is usually required before funds can be released
- Loan-to-GDV ratio – Most lenders will lend up to a certain percentage of the projected GDV, typically 65 – 70%.
- Loan-to-Cost ratio – This assesses how much of the project’s cost the loan will cover – usually up to 85%
Risk Assessment and Management
Lenders will conduct detailed risk assessments to ensure the viability of both the project and the developer’s ability to complete it successfully. Factors include market demand, the reliability of the build team, project timelines and potential exit strategies. Developers must also prepare for unexpected delays or cost overruns.
To mitigate risk, lenders often require step-in rights (to take over the project if things go wrong), personal guarantees, and independent monitoring surveyor (IMS) reports throughout the construction process to verify progress and quality before releasing staged payments.
Development Finance vs Traditional Lending
Unlike traditional bank lending, development finance is designed to be flexible and project-specific. High street lenders typically shy away from speculative builds, whereas development lenders understand the nuances and risks.
Traditional loans are also more rigid, often requiring full security upfront, fixed repayments, and are rarely suitable for phased developments. Development finance is typically more expensive, but it offers much-needed flexibility and speed.
When is Development Finance Suitable?
Development finance is suitable in a wide range of instances compared to traditional lending, with the most common scenarios being:
- Developers have secured a site with or without planning permission
- The project requires a substantial upfront investment in stages
- There is a clear exit strategy (sale or refinance)
It is less suitable if:
- Developers lack experience or planning permission
- Developers have insufficient equity to contribute to the project
- The development timeframe is long and uncertain
Importance of an Exit Strategy When Applying for Development Finance
Lenders will want a clear, well-documented plan for how the loan will be repaid, backed by credible market analysis and contingency options. This typically falls into two primary categories:
- Sale of Units – Common in residential developments where individual properties are marketed and sold to homebuyers, generating capital to repay the loan
- Refinancing – Often used for rental portfolios or longer-term investment properties, transitioning from development finance to a commercial mortgage once the project achieves stabilised occupancy
The exit strategy must be realistic and supported by robust market evidence, with particular attention to comparable sales, absorption rates and the projected timeline to full repayment.
Final Thoughts
Development finance loans are essential tools for property developers aiming to deliver housing, commercial or mixed-use schemes. While the process can be complex, understanding how it works – from loan types to approval criteria and risk management – helps ensure successful outcomes.
If you’re considering development finance for your next project, speak with a specialist lender like BLG Development Finance. Having the right partner can make the difference between a project that stalls and one that succeeds.
by David Khan | Mar 14, 2025 | Latest News
The Government has unveiled a transformative Planning and Infrastructure Bill aimed at modernising the planning process and accelerating the delivery of housing and infrastructure projects. This ambitious legislation is designed to remove blockages in the system, boost local decision-making efficiency, and ultimately drive economic growth through faster project delivery and job creation.
Streamlining the Decision Process
At the heart of the Bill is the introduction of a national scheme of delegation. This new framework will clearly define which planning applications should be determined by officers and which require a decision from a planning committee. The aim is to create greater consistency and certainty across local planning authorities, ensuring that decisions are both timely and well-informed. Alongside this, reforms will see changes in the composition and size of planning committees. Large, unwieldy committees will be replaced with smaller, more effective groups, and mandatory training requirements will be imposed on committee members—and even on mayors—to enhance the quality of planning decisions.
Reforming Planning Fees and Compulsory Purchase
The Bill also introduces changes to planning fee arrangements. Local Planning Authorities will now have the autonomy to set fees that reflect their actual service delivery costs. This move acknowledges the unique financial pressures faced by different regions and aims to reinvest these fees directly back into the planning system. Additionally, significant reforms are being made to the compulsory purchase process. The new measures will extend powers to remove “hope value” from properties, simplify statutory notices by allowing electronic delivery, and speed up the vesting of land. These changes are expected to enable a more effective assembly of land for public projects, paving the way for smoother development processes.
Empowering Development Corporations
Another major facet of the Bill is the enhanced framework for development corporations. By clarifying their powers and expanding their geographical and operational scope, the legislation supports more agile and effective development and regeneration projects. This includes the ability to manage both brownfield and greenfield sites and to drive new town developments. The changes ensure that development corporations can contribute to sustainable growth and better align with contemporary urban development needs.
Industry Endorsement
Neil Jefferson, Chief Executive of HBF, remarked on the reforms:
“The swift moves to address the failings in the planning system are a very welcome and positive step towards increasing housing supply. Removing blockages, speeding up the decision-making process and ensuring local planning departments have the capacity to process applications effectively will be essential to getting more sites up and running. If the other constraints currently preventing house builders delivering more homes can be tackled, the changes made to planning will really allow output to accelerate.”
Unlock Your Next Project
As the planning landscape evolves, now is the perfect time to explore innovative finance solutions to support your next development. Our tailored finance products are designed to help you navigate these changes, accelerate project delivery, and drive growth. Contact us today to learn how we can help turn your vision into reality.
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, Featured
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.
