Development finance can be a powerful tool for funding property projects, but it’s not as straightforward as a typical mortgage. Lenders take on significant risk, so access to development funding is selective and based on strict criteria. That doesn’t mean it’s out of reach. It just means you need to approach it strategically and with preparation.
In this post, we’ll explore what makes development finance harder to obtain, what lenders are really looking for, and how you can put yourself in the best possible position to be approved.
What is development finance?
Development finance is a short-term loan used to fund residential or commercial building projects. It typically covers:
- Ground-up developments
- Conversions (e.g., office to residential)
- Heavy refurbishments
- Mixed-use schemes
Funds are usually released in stages, aligned with build progress, and repaid through the sale or refinancing of the completed asset.
Specialist brokers like ourselves work with a panel of lenders to match borrowers with the most suitable funding structures, from senior debt to joint venture arrangements.
Why is development finance considered harder to access?
Unlike traditional property finance, development loans involve multiple layers of risk, from planning issues and build costs to market volatility. As a result, lenders scrutinise every detail before committing funds. The most common hurdles include:
1. Lack of experience
Lenders prioritise developers with a proven track record. If you haven’t completed similar projects before, securing finance can be challenging unless you bring in an experienced project manager or joint venture partner.
2. Weak project viability
If your gross development value (GDV) margin is too slim, or the end product lacks clear market demand, lenders may not proceed. A healthy GDV margin, often above 25%, is typically required.
3. Insufficient equity contribution
Most development lenders require you to contribute some capital upfront, whether through land equity or cash. A lack of investment from the developer signals higher risk to the lender.
4. Incomplete planning or costings
Development loans rely on solid feasibility. That means detailed build costs, timelines, planning permissions, and professional reports. Anything less weakens your application.
How to improve your chances of approval
If you’re worried about getting turned down, there are several ways to strengthen your position:
- Work with a specialist broker: We understand lender criteria and can match you with the right funding solution.
- Present a detailed proposal: Include planning documents, professional cost estimates, project timelines, and a clear exit strategy.
- Partner with experience: If this is your first project, bring in a contractor or project manager with a strong background in delivering similar developments.
- Offer additional security: If possible, provide a personal guarantee or use another property to secure the loan.
- Start smaller: Consider beginning with a refurbishment or conversion to build experience and credibility.
Is it worth the effort?
Yes, if you have a viable project and are prepared. Development loans can unlock profitable opportunities that would otherwise be inaccessible. The key is to approach it professionally, back your plans with evidence, and work with experts who understand the lender landscape.
Final thoughts
While development loans are not the easiest form of finance to secure, they are certainly accessible to those who meet the criteria. The more prepared and experienced you are, the smoother the process becomes. With the right structure and support, development finance can be a game-changer for your property business.
Need support with your application? Speak to one of our specialist to assess your project and explore tailored funding options.