Development finance can be a better option to bridging loans
When someone has a poor condition or derelict property that they would like to renovate and restore they may decide to use a bridging loan in order to raise the funds required to carry out the restoration and construction work. Bridging loans can also be used by people who have a plot of land that has planning permission, so as to fund the construction of the building that is to be built on the land.
For both the above examples a bridging finance facility is a useful way to raise the funds required to carry out and complete the building and construction work. Once the work has been completed the bridging finance can be repaid through the sale of the property or alternatively a more suitable long term finance facility can be put in place. For example a buy to let mortgage facility could be set up and put in place in order to repay the bridging finance and provide a long term finance solution with an affordable rate of interest. When setting up the buy to let mortgage in order to repay the bridging finance, the customer may decide to raise more funds than are required to simply repay the bridging finance in order to help fund the next development.
Although bridging loans are an excellent way of funding restoration and construction projects, development finance or a development loan maybe another option that could be worth considering in place of bridging finance. In many ways a development loan is very similar to bridging finance, mainly because they are suitable for providing funds for construction and renovation, and are a short term method of finance.
However a development loan is a more of a specialist facility for funding building, construction and development. They are often referred to as construction loans or construction finance by builders and developers, but within the finance industry this type of finance is known as development finance.
Because a development loan is a more specialist option for raising the funds required to build new properties or extend existing ones, they may often be the most cost effective option for new developments, conversion and restoration projects. Like bridging loans they can often be put in place quickly and although a short term method of borrowing, because building projects, especially large developments, can take some time to complete, development finance can be arranged for longer periods than bridging loans. A development loan is often required for 6 to 12 months but periods of up to 3 years are not uncommon.
Due to their nature a development loan can often raise more money for the developer than a bridging facility could have. However, the funds from a development facility maybe released in stages as work progresses and once the different stages of a development has been completed.
Once work has been completed a new development will normally be sold and from the sale proceeds the development loan will be repaid. Alternatively a long term finance facility such as a commercial mortgage maybe put in place to repay the development finance, which could also provide funds for other uses, such as the capital required to start the next project.