How to Secure Development Finance for Your Project

Securing development finance can seem daunting, but with proper preparation and understanding of lender requirements, you can navigate the process smoothly and secure funding for your property development project. This guide provides practical, actionable advice on successfully obtaining development finance.

Before You Start: Project Viability

Before approaching lenders, ensure your project fundamentals are sound.

Assess Your Numbers

Run detailed financial analysis:

Gross Development Value (GDV): Professional valuation of completed development

Total Development Costs (TDC):

• Land purchase
• Build costs (from quantity surveyor)
• Professional fees (architect, engineers, surveyors)
• Planning costs
• Finance costs
• Marketing and sales
• Contingency (10-15%)

Development Profit: GDV minus TDC

Profit on Cost: (Profit / TDC) x 100

Lenders typically want to see minimum 15-20% profit on cost before finance costs.

Reality Check Your GDV

Be conservative with valuations:

• Use recent comparable sales
• Account for market conditions
• Consider absorption rates (how quickly units will sell)
• Factor in potential market changes during development period

Overoptimistic GDV is the most common reason for project failure.

Verify Build Costs

Engage a quantity surveyor (QS) for professional cost assessment:

• Detailed cost breakdown by trade
• Realistic timescales
• Current market rates for materials and labor
• Regional variations

Contractor quotes should align closely with QS estimates.

Essential Documentation

Prepare comprehensive documentation before approaching lenders:

Planning Permission

Detailed planning consent is essential:

• Full planning approval (outline insufficient for most lenders)
• All conditions identified
• Discharge plan for reserved matters
• Copy of decision notice
• All approved plans and specifications

Without planning permission, development finance is almost impossible to secure.

Development Appraisal

Professional appraisal including:

• Itemized cost breakdown
• GDV calculation and evidence
• Profit analysis
• Cashflow projection
• Sensitivity analysis (what if scenarios)

Many brokers and advisors provide appraisal software or templates.

Quantity Surveyor's Report

Detailed QS cost report showing:

• Trade-by-trade cost breakdown
• Total build cost estimate
• Preliminaries and overheads
• Allowance for contingencies
• Professional fee estimates

Lenders will commission their own QS review, but your report demonstrates preparedness.

Build Programme

Realistic construction timeline:

• Week-by-week or month-by-month schedule
• Critical path identification
• Allow for delays and seasonality
• Typically 12-24 months for most residential projects

Building control and weather delays are inevitable - build in buffers.

Professional Team Details

Architect:

• Registration credentials (RIBA/ARB)
• Relevant experience
• Professional indemnity insurance

Structural Engineer:

• Qualifications and accreditations
• Relevant project experience

Building Contractor:

• Company details and history
• Relevant experience and recent projects
• Financial stability
• Insurance certificates (public liability, employer's liability)
• Health and safety credentials

Lenders want established, insured professionals with track records.

Your Experience Portfolio

Demonstrate your capability:

• CV highlighting relevant experience
• Previous development projects with outcomes
• Before/after photos
• Financial results from past projects
• References from previous lenders or professionals

First-time developers face greater scrutiny and may need stronger teams or lower LTV.

Financial Information

Personal finances:

• Last 3 years' accounts (if self-employed) or payslips (if employed)
• Bank statements (3-6 months)
• Credit report (check yourself first)
• Asset and liability statement
• Proof of deposit funds

Company finances (if using limited company):

• Company accounts (2-3 years)
• Company bank statements
• Management accounts if recently incorporated

Understanding Lender Criteria

Different lenders have varying requirements:

Loan-to-Value (LTV) Expectations

Land: Typically 60-70% of land value Build costs: Usually up to 100% of construction costs Overall: Combined usually capped at 65-75% of GDV

Example: £1m GDV project

• Land value: £300k
• Build costs: £400k
• Total costs: £700k

Typical lending:

• Land: £300k x 65% = £195k
• Build: £400k x 100% = £400k
• Total loan: £595k
• Your equity required: £105k plus contingency and costs

Some lenders are more flexible; others more conservative.

Experience Requirements

Experienced developers (2+ completed projects):

• More lenders available
• Higher LTV possible
• Better rates
• Faster approvals

First-time developers:

• Fewer lender options
• Lower LTV (typically 60% GDV)
• More scrutiny on team quality
• May require proven contractor and project manager

Some lenders specialize in first-time developers - work with brokers who know them.

Profit Requirements

Lenders expect minimum profit levels:

• Minimum profit on GDV: 15-20%
• Minimum profit on cost: 15-20%

Example: £1m GDV, £700k costs

• Profit: £300k
• Profit on GDV: 30% (excellent)
• Profit on cost: 42.8% (excellent)

Projects with lower margins face rejection or require lower LTV.

Project Size

Lenders often have minimum and maximum loan sizes:

• Minimum: £100k-£500k depending on lender
• Maximum: £5m-£50m+ depending on lender

Match your project to appropriate lenders.

Choosing the Right Lender

Not all development finance lenders are equal:

High Street Banks

Pros:

• Competitive rates (when they lend)
• Strong reputation
• Relationship banking possible

Cons:

• Strict criteria
• Slow processes
• Conservative lending
• Limited appetite for certain project types

Specialist Development Finance Lenders

Pros:

• Understand development
• More flexible criteria
• Faster decisions
• Range of project types

Cons:

• Higher rates than banks
• More fees
• Variable quality and reliability

Private Lenders and Family Offices

Pros:

• Very flexible
• Fast decisions
• Bespoke structures

Cons:

• Expensive
• Less regulated
• Need strong relationships

The Application Process Step-by-Step

Step 1: Choose Your Broker

Use a specialist development finance broker:

• Know which lenders suit your project
• Understand current appetite and criteria
• Negotiate better terms
• Manage the process
• Save significant time

Brokers are typically paid by lender commission, so cost you nothing.

Step 2: Initial Consultation

Discuss your project with broker:

• Provide high-level overview
• Share initial numbers
• Explain your experience
• Discuss timeline

Broker will assess feasibility and recommend approach.

Step 3: Document Preparation

Gather all documentation (see Essential Documentation section).

Incomplete applications delay approvals by weeks or months.

Step 4: Lender Selection

Broker identifies 2-4 suitable lenders:

• Match project to lender appetite
• Consider rates, terms, and speed
• Account for your experience level
• Review lender track records

Step 5: Initial Submission

Broker submits overview to lenders:

• Executive summary
• Key project metrics
• Your credentials
• Basic financials

Good lenders provide initial feedback within 48-72 hours.

Step 6: Indicative Terms

Interested lenders provide terms sheet:

• Loan amount and structure
• Interest rate
• Fees
• LTV ratios
• Key conditions
• Indicative timeline

Not legally binding but shows lender's approach.

Step 7: Full Application

Submit complete documentation package to chosen lender:

• All reports and plans
• Financial information
• Legal documentation
• Team credentials

Completeness speeds up process significantly.

Step 8: Lender Due Diligence

Lender conducts detailed assessment:

Valuation: RICS qualified valuer assesses:

• Land value
• GDV
• Market conditions
• Comparable evidence

Costs £1,000-£3,000+ depending on project size.

Quantity Surveyor Review: Lender's QS reviews:

• Your cost estimates
• Build programme
• Contractor quotations
• Contingency adequacy

Legal Review: Solicitors examine:

• Title documents
• Planning permission
• Legal restrictions
• Rights of way
• Environmental issues

Credit Checks: Assess:

• Personal credit history
• Company credit (if applicable)
• Previous lender relationships
• County Court Judgments (CCJs)

Step 9: Underwriting Decision

Lender's credit committee reviews everything:

• All reports and due diligence
• Risk assessment
• Project viability
• Your capability

Decision typically takes 1-3 weeks after due diligence completion.

Step 10: Formal Offer

Successful applications receive formal offer:

• Detailed terms and conditions
• Loan agreement
• Security documentation
• Drawdown schedule
• Monitoring requirements
• Special conditions

Review carefully with solicitor before accepting.

Step 11: Legal Process

Solicitors handle documentation:

• Loan agreements
• Debentures (if company borrowing)
• Legal charges on property
• Personal guarantees

Typically takes 2-4 weeks with experienced solicitors.

Step 12: Completion and Drawdown

Once legal work completes:

• First drawdown released (land purchase and initial costs)
• Construction begins
• Subsequent drawdowns released against milestones
• Monitoring surveyor inspects and certifies stages

Stage Drawdown Management

Understanding stage payments is crucial:

Typical Stage Structure

Stage 1 (e.g., 20%): Land acquisition + preliminaries Stage 2 (e.g., 20%): Foundations complete Stage 3 (e.g., 20%): Building weatherproof Stage 4 (e.g., 20%): First fix complete Stage 5 (e.g., 20%): Practical completion

Percentages vary by lender and project.

Monitoring Surveyor Process

At each stage:

1. You request drawdown
2. Lender instructs monitoring surveyor
3. Surveyor visits site
4. Surveyor confirms stage completion
5. Surveyor certifies drawdown
6. Lender releases funds (typically 3-7 days)

Monitoring fees: £300-£600 per inspection, deducted from drawdowns.

Cash Flow Management

Critical considerations:

• Funds released in arrears (after work complete)
• Your cash bridges gaps between stages
• Build contingency fund for:
  • Stage payment gaps
  • Unexpected costs
  • Monitoring delays
  • Contractor payment timing

Most developers need £20k-£50k+ working capital beyond equity requirement.

Improving Your Application Strength

Professional Presentation

• High-quality appraisal document
• Professional photos and renders
• Clear, comprehensive documentation
• Evidence-based assumptions
• Realistic timelines

Build a Strong Team

• Experienced contractor with good track record
• Qualified professionals with insurance
• References from professionals
• Clear team communication and coordination

De-Risk the Project

Forward sales: Pre-sell units before completion Fixed price contract: Contractor committed to price Contingency planning: Alternative exit strategies Market research: Evidence of demand Planning pre-commencement conditions: Discharged early

Demonstrate Financial Strength

• Funds readily available
• Strong personal financial position
• Previous successful projects
• Other assets and income sources

Common Rejection Reasons

Insufficient profit margins: Project doesn't provide adequate return for risk Overoptimistic valuations: GDV not supported by market evidence Inexperience: First-time developer with weak team Inadequate equity: Can't provide required deposit and contingency Poor credit history: CCJs, defaults, or bankruptcies Weak planning permission: Uncertain conditions or outline only Wrong property type: Lender doesn't support that property category Insufficient detail: Incomplete application with missing information

Tips for Success

Start early: Begin finance discussions before exchanging on land

Be realistic: Conservative numbers are more believable

Complete applications: Missing documents cause delays

Build relationships: Work with same lenders on multiple projects

Use experienced brokers: Market knowledge is invaluable

Professional team: Invest in quality advisors

Allow time: Don't underestimate process duration

Maintain communication: Keep lenders informed of progress

Have backup plans: Alternative lenders or exit strategies

After Approval: Setting Up for Success

Maintain Good Lender Relations

• Regular progress updates
• Respond quickly to queries
• Meet monitoring surveyor appointments
• Flag issues early

Manage Build Effectively

• Stick to programme where possible
• Control costs carefully
• Maintain quality standards
• Document progress with photos

Plan Your Exit

• Begin sales process early
• Arrange refinance well in advance
• Maintain financial reserves
• Have contingency plans

Conclusion

Securing development finance requires thorough preparation, professional presentation, realistic projections, and understanding lender requirements. While the process can seem complex, breaking it down into clear steps makes it manageable.

The keys to success are:

• Solid project fundamentals with adequate profit margins
• Complete, professional documentation
• Experienced professional team
• Conservative financial assumptions
• Adequate equity and reserves
• Working with specialist brokers

With proper preparation and realistic expectations, you can successfully navigate the development finance process and secure funding for your property development project. The effort invested in a strong application pays dividends through faster approvals, better terms, and smoother project execution.