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Development Loans
There is a wide range of development finance lenders in the market that offer a variety of leverage towards your project, usually this is secured by way of a first charge and is often referred to as Senior Debt.
Senior Debt lenders provide a level of funding that will require the borrower to inject a reasonable level of equity to offer the lender a lower risk. Typically, this type of funding provides a maximum of 75-80% of the total cost and the borrower is expected to put their equity into the land purchase. If the loan is for a development, the bank will fund all of the construction and finance cost and the remainder of the facility can be utilised towards the land.
Development LOAN EXAMPLE
Development finance lenders can retain their interest and arrangement fee from the loan facility so you do not need to service repayments during the term.
Development Loan Example
Below is a worked example for a development loan;
Project
- £5,000,000 – Gross Development Value
- £1,500,000 – Land Purchase
- £2,000,000 – Construction Cost
- £500,000 – Finance Cost
- £4,000,000 – Total Cost
- Bank Facility: 75% of Cost
- £3,000,000 – Total Facility equating to 75% of £4m Total Cost
- £2,000,000 – Construction Cost
- £500,000 – Finance Cost
- £500,000 – Remaining facility provided for Land Purchase
Therefore the borrower will need to inject £1,000,000 of equity alongside the bank facility of £500,000 to purchase the development site.
Generally traditional senior lenders require lower risk and will only lend on properties that provide good security or development projects with full planning permission in place. This type of funding is the lowest cost of finance due to the lower risk and the level of equity required from the borrower.
In some cases, you may not have the sufficient level of equity to use only senior debt and you may require a mezzanine loan or equity investment to help secure your project and Aureum Finance can assist.
When you work with Aureum Finance you will benefit from a team that holds decades of lending experience. We are here to help you find the best solution for your funding requirements.