General Lending Criteria
Although development lenders will look at and work on applications on a case by case basis, all will consider the following points when assessing a development finance application.
Loan size £100,000 to £1 billion - at KIS we deal with development loans from £100k, with no upper limit. We have expert teams who can deal with large development funding requirements, specialising in:
- Large residential developments
- Apartment blocks
- Student accommodation
- Care homes
Term of loan 1 to 36 months - lenders may be flexible, but most development funding is set up with terms ranging from 12 to 36 months, without penalties for early settlement.
Loan to Value maximum 80% of GDV - consideration will be given to how much you are looking to borrow as a percentage of the GDV (gross development value) of the finished project. The maximum loan to value based on GDV is generally 70%, but in certain circumstances 75% or even 80% is achievable.
Types of security offered - the site or building(s) being offered as security must be suitable, with satisfactory access to the site, etc.
Experience - how experienced is the developer? Have they manged successful projects in the past?
Location of the development - does the lender like the location, have they already funding out on other projects in the area that could mean they will be left over exposed, or do they have concerns about the area that could affect the sale price of the finished development.
Planning permission requirements - has this already been obtained or is it still required?
Exit strategy - all lenders will want to see a viable exit strategy in place for any project
Feasibility of the project - Does the lender consider the whole project to be feasible, or do they have concerns? Concerns will usually be discussed with the borrower to see if they can be addressed.
CBILS Backed Development Exit Loan - All interest payments paid by the government
Types of Borrowers for Development Finance
Most lenders will consider applications from:
- Limited Companies
- Individuals/Sole Traders
What do I need to make a development loan application?
To make an application you require:
- Details of the development site – location, value, purchase price
- Development appraisal
- Development costs
- Details of the planning permission – what does the site have planning for and what are you planning to build
- Gross Development Value – Evidence of the expected end value – for example if the development is for residential houses, you will require estate agent opinions on how much they think the houses will sell for when finished.
- Details of all the applicants, if a limited company then details about the directors:
- their CVs
- history of previous developments – need to know what developments they have been involved in over the past 5 years
- How successful were these developments?
- What were the development costs and how much did they sell for?
- What was the project profit?
- If the borrower(s) has limited development experience, lenders will need details of the development team:
- who is going to be the project manager (their CV or website)?
- who is the main contractor?
- Asset and liability statement for the applicants or company directors
- Company structure
How to ensure your development finance application is accepted
Lenders receive numerous applications, so here are a few simple tips to make sure that your application gets their attention and has the best chance of favourable outcome:
- Accuracy is essential - Make sure that all the data you provide is clear, accurate and well presented. Your application will then look professional and well thought out.
- Don’t inflate any figures – Over estimating the value of the finished development is never a good idea. Valuations and market comparator tests will mean that lenders will pick up on this and will not be impressed that your figures are not accurate, fuelling doubts about the rest of the information you have presented. Consequently, they may reject your application.
- Know your figures inside out - It is essential to know all the relevant figures in detail, not just the main ones. You’ll need a full breakdown of costs across the life of the project, including key milestones and the points when you’ll need to draw down funds. Lenders may want to meet with you to discuss your application and will need to be confident that you fully understand all the costs of your development.
- Don’t exaggerate your level of experience - Lenders will check out any claims that you make about previous projects, so don’t be tempted to try to appear more experienced than you are. Honesty is essential, so even if this is your first project, just say so.
Some lenders will work with first time developers, but few will want to work with someone they don’t fully trust.
What paperwork is needed to obtain development finance?
Having the right information ready can really help to speed up the process of arranging development finance. Key items that you will need are:
- Any planning permission applications or details, including any restrictions
- Any drawings or designs for the project
- A detailed breakdown of all costs
- A full schedule of works for the project and details of all the professionals involved - for example contractors, architects, etc. A lot of the information that you will require can usually be found on the professional’s website.
- An Asset, Liability, Income and Expenditure Summary (ALIE) – a lender will want to see this to ensure that you will be able to financially support yourself whilst undertaking the development. In addition, they will want to ensure that you can support a personal guarantee if the loan is made to a corporate structure.
- Details of your previous development experience.
- Details of your planned exit strategy for the project. This would typically be sale of the development, refinance once the build has been completed, or a combination of both.
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