Applying for development finance is effectively an exercise in convincing your chosen lender that you are a safe bet. Development finance is a facility that is usually only offered to experienced developers with an established track record.
Consequently, lenders have a tendency to be somewhat stringent with their requirements. All aspects of your application will be scrutinised, and you can expect to be asked plenty of questions along the way.
Your job is to ensure you are adequately prepared for every question they may ask, while presenting all aspects of your case with complete confidence.
With this in mind, here are five ways to add weight and credibility to your next development finance application:
1. Do Your Homework First
Submitting a convincing development finance application begins with demonstrating your knowledge and understanding of what development finance is. You need to know how development finance works, how it differs from comparable funding solutions and the criteria lenders consider when processing applications.
Development finance specialists always prefer working with those with a detailed knowledge and understanding of their products. Otherwise, you may come across as too naïve and inexperienced for the lender to take seriously. Study the ins and outs of development finance before applying, paying close attention to the logistics of how the facility works.
2. Demonstrate Risk Awareness
Contrary to popular belief, the worst thing you can do is attempt to convince a lender that your proposal is 100% bullet-proof and risk-free. Doing so will simply demonstrate your naivety and/or ignorance to the inevitable risks all property developers must contend with. While you need to convince the lender that your project is a safe bet, it is essential not to get carried away with OTT assurances.
A convincing property development finance application incorporates a detailed overview of all potential risks, along with how they are being planned for in advance, or perhaps how they will be dealt with, in the event that they arise. Demonstrating risk awareness is essential, as lenders need to know that all possible contingencies have been considered. Where potential risks are overlooked, ignored or excessively played down, the likelihood of something going drastically wrong is much higher.
3. Guarantees and Assurances
If you can convince your lender that they will definitely get their money back in full and on time, the rest is inconsequential. This is where providing the right guarantees and assurances can make all the difference. Development finance is always secured against assets of value – typically the property or development the loan is used to fund. If the lender is satisfied that the asset’s value comfortably exceeds that of the loan, they will most likely authorise the facility.
Likewise, the strength of the developer’s exit strategy will play a role in determining their eligibility. If you have already lined up a buyer for the development upon its completion, you will be considered a safe bet. By contrast, presenting a convincing case with no formal exit strategy in place can be a far more difficult task.
4. Independent Broker Support
Most development finance specialists show preference to those who apply by way of broker introductions. This is mainly due to the fact that brokers do much of the legwork on behalf of the lenders they work with. They conduct initial eligibility checks on applicants, they ensure all necessary paperwork is in place and they pair developers with appropriate providers – all of which can save the lender time, effort and money.
Importantly, brokers also negotiate on behalf of their clients to ensure they get the best possible deal. As many development finance specialists such as developmentfinance.com offer their services exclusively via broker introductions, enlisting broker support at an early stage comes highly recommended.