Construction companies and developers working on commercial properties have a broad range of funding solutions at their disposal. One of which is specialist commercial property development finance, which is typically issued exclusively to experienced developers with an established portfolio.
Detailed below, we take a closer look at how commercial property development finance works and who could benefit from a development finance loan.
Commercial property development funding explained
Commercial property development finance is a bespoke funding solution issued to cover the costs of more extensive and ambitious projects. From new builds to repurposing and renovating existing properties, commercial development finance can be used to fund all types of development work.
Where the applicant meets the issuer’s lending criteria, development finance can be used to conduct major work on the following property types:
- Retail units
- Residential properties
- Offices
- Warehouses
- Factories
- Hospitals and medical centres
- Dental surgeries
- Care and nursing homes
- Hotels and guesthouses
- Pubs and restaurants
- Motor garages
- Workshops
Each of these property types can also be used as security for the facility if the value of the asset far exceeds that of the loan being issued.
Frequently asked questions
Specialist development finance (the type released in stages) is typically available exclusively to experienced developers and construction companies. Elsewhere, there are alternative options available for those who may not qualify for a development finance loan.
Each of the following has its own unique advantages and disadvantages, which should be discussed with an independent broker before applying:
- Commercial Mortgages: As the name suggests, a commercial mortgage works similarly to a conventional mortgage, though is issued for the purchase of a commercial property. A commercial mortgage can be more flexible than a traditional mortgage in terms of potential uses, but will often attach a higher APR and associated borrowing costs.
- Bridging Finance: Bridging loans are similar to development finance loans, but with much more relaxed lending criteria. No specialist knowledge or experience is needed to qualify for bridging finance, which is issued on the basis of security (collateral) and evidence of a workable exit strategy. Bridging finance can also be arranged within a few days, is designed to be repaid after a few months and attaches a monthly rate of interest of around 0.7%; though with bridging finance, the full loan is issued all at once, not in stages.
- Auction Finance: Auction finance is a type of bridging finance issued for the purchase of properties at auction. When homes and business properties go under the hammer, a 10% deposit needs to be paid on the day and the remaining balance within 28 days. Approval for auction finance can be obtained ahead of the auction, and the funds needed to buy the property (and conduct any necessary renovations) can be arranged within a few working days.
Each of the above-mentioned products comes with its own unique requirements where qualification criteria are concerned. Even so, the basic information you will need to provide when applying for any of these development finance loans is fairly consistent.
Examples of which include the following:
- Full details of total build costs
- The purchase price of the site or its current value
- Information on debts or restrictions on the site
- Proof of planning permission obtained
- Estimate of the project’s value upon completion
- Your CV and track record in similar projects
- Credit rating
Note: Credit checks are also conducted as standard, but will not necessarily count you out of the running if your credit score is low. However, excellent credit and proof of a strong financial position will always pave the way for a competitive deal on a commercial property development loan.