100% Development Finance: What Is It And Are You Eligible?
Demand for quality land is increasing throughout the UK. However, a good quality land that has either been granted planning permission or most likely will be granted permission can cost in the hundreds of thousands or millions.
Once developed, the value of the development shoots up even more, which results in increased share of the profits. When done right, development finance can prove to be a lucrative business but many are unable to do this with their own money. They try to raise capital to start working on the project, which is where 100% development finance comes in.
Before you consider going with this development finance, it is crucial to fully understand what it is, the benefits it can offer, and your eligibility.
Understanding 100% Development Finance
100% development finance is also referred to as joint venture finance. It is a means for land and property developers to increase the capital for project completion without investing their own money. The major question many have is why anyone would invest 100% of the cost of a project.
Simply put, the investor gets a share in the overall project once it is complete.
There are two kinds of joint venture finance:
- One in which interest is not charged on the debt, but the lender gets a higher share in the profits
- Second in which a specific percent of interest is charged, but the lender gets a smaller share of the profits
Often, the developer and lender go 50-50 on the profits, but it varies depending on the agreement and individual circumstances.
Benefits of 100% Development Finance
This kind of development finance is highly popular for developers throughout the UK as it offers a range of advantages. Some of the major benefits of 100% development finance are as follows:
Through 100% development finance, there is limited risk for you since you don’t invest any amount but provide your time to complete the project. This means the weight isn’t solely on your shoulders. You share that risk with the lender, meaning you have some peace of mind to focus on completing the project at hand.
Moreover, the reduced risk also ensures you don’t invest all of your money in a single project and without the need to use cheaper materials to get the project done.
Most lenders prefer an exit plan between 12 to 18 months, putting you in a better position to not be limited by time expectations that typically come with other kinds of development finance. The flexibility that comes with 100% development finance further reduces the pressure on you, ensuring you complete the project in the best way possible.
Project Management Assistance
With the right providers, you can get the right assistance throughout the project from experienced specialists who can assist you right from the start. We work as a team to ensure your project is profitable by ensuring you get proper guidance whenever you need it.
Eligibility Criteria For 100% Development Finance
Development finance applications often get evaluated on a case-by-case basis. However, the usual criteria for eligibility at Finbud include:
Clean Credit: In some cases, bad credit can be a deal-breaker for any development finance lender, particularly if it creates a problem in the exit strategy. However, a clean credit indicates you are low risk and enables you to get a reasonable rate with the lenders.
- Industry Experience: Many lenders prefer working with people with good industry experience and an excellent track record but there are also chances for new investors.
- Gross Development Value (GDV): We look for a 27% return on GDV, pre finance.
- Project Length: We look for a project length of up to 18 months.
Other criteria include:
- Middle of the market housing considered to be reasonably priced for the area
- Deals up to £8,000,000 for Contractors, Developers or Developer-Contractors based all over UK Mainland.
- We welcome traditional new builds but also conversions and modular builds.
- Outline or Full Detailed Planning permission.
- No Personal guarantee needed.
There is something for every project based on the requirements of your development, which is why it is best to have a consultation to understand your options first.
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Joint venture financing is one of the most popular options for developers as it lowers the risk for them while also offering a large amount of support. However, the right options can be found with proper consultation and based on your needs. Often, some lenders prefer that the developer is on their third or fourth project before granting them 100% development finance funding.
The Finbud team has extensive experience and knowledge about joint venture development and has strong relations with the leading funders and investors. We work with you to find the best solution for your needs after assessing your project and finding the right match.
We make the process easier for you so that you can focus your attention on your upcoming project. We do the legwork of negotiating with numerous lenders to find the best possible deal for you. Best of all, there are no broker fees on standard cases, saving you more money!
Give us a call today.