Fuelling Growth: Specialised Finance for Ambitious Projects
While residential mortgages form the core of the lending market, the financial needs of property developers and business owners require a more specialised and sophisticated approach.
Securing funding for large-scale construction projects or unlocking working capital for business growth involves different products, metrics, and lender appetites. Expertise in these complex commercial finance areas is essential to structure deals that not only provide the necessary capital but also align with the strategic and commercial objectives of the project or business.
Construction projects, land acquisition, staged drawdowns, and maximising leverage
Construction
ROE Maximisation
Development finance is a specialised form of funding tailored for the construction and development of real estate projects, from small residential builds to large-scale commercial complexes.
Unlike a standard mortgage, this type of finance is structured to cover both the acquisition of the land and the phased costs of construction.
Funding is not disbursed as a single lump sum. Instead, it is drawn down in stages that align with construction milestones, similar to a residential construction loan.
Interest is often "capitalised," meaning it is added to the loan balance rather than being paid monthly, with the entire loan principal and accumulated interest repaid upon the sale of the completed properties.
Lenders in this space conduct rigorous due diligence before approving a loan. The assessment goes far beyond the borrower's personal income, focusing on the commercial viability of the project itself.
A detailed analysis of the project's plans, council approvals, and projected profitability. Lenders will typically want to see a minimum net profit margin of 15-25% on the project's completion.
A proven track record of successfully completed projects is highly valued by lenders.
The reputation and reliability of the chosen builder and project manager are also scrutinised.
When determining how much a developer can borrow, lenders primarily use one of two models. Understanding the difference is crucial for maximising your Return on Equity (ROE).
Total Development Cost
The loan amount is calculated as a percentage of the total project costs, which include land, construction, and associated soft costs.
A typical TDC loan might be capped at 80% of the total costs, requiring the developer to contribute the remaining 20% as equity.
Traditional model favoured by major banks
Gross Realisation Value
The loan amount is based on a percentage of the project's forecast end value upon completion.
A lender might offer finance up to 70% of the GRV.
Offered primarily by non-bank and private lenders
While GRV-based finance often comes with higher interest rates and fees, it provides two significant strategic advantages:
Because it is based on the higher end-value figure, it frequently allows the developer to borrow a larger sum of money, thereby reducing the amount of upfront equity needed. This can free up capital to pursue other opportunities.
GRV lenders often have minimal or no pre-sale requirements, allowing the developer to hold the completed stock and sell into a potentially stronger market, thus maximising their final profit.
A broker's role is to act as a financial analyst, modelling both scenarios to help the developer determine which structure will deliver a higher Return on Equity (ROE) for their specific project.
Whether you're a developer seeking construction finance or a business owner looking for growth capital, we have the specialist knowledge and lender relationships to structure the right solution for your ambitious project.