Development funding is an essential aspect of property development, as it provides the necessary capital to carry out development projects.
Without adequate funding, property development cannot take place. The right development funding ensures that the development process runs smoothly, and the project is completed on time and within budget.
There is a tendency for people to view money as a commodity. Consequently, we hear quite often that clients are looking for the “best rate”, essentially viewing the cost of the money as the only differentiator. In my view this is quite a dangerous approach to take. What’s much more important, is to consider how the money might “behave”.
Different types of development funding have different terms and conditions, and some types of funding may be more rigid than others. If a developer chooses a funding option that lacks flexibility, they may be unable to adjust their plans as market conditions change or as unexpected events occur. This can lead to delays, cost overruns, or even the abandonment of the project.
We have lots of examples of developers approaching us with part complete developments where their existing funding has not been able to adapt to changing circumstances. It can be very difficult for lenders to take on projects part way through, although it can be done, but it does highlight to me the importance of choosing the “right” money from the outset. It brings to mind the sage advice “buy cheap, buy twice”.
Building property is an incredibly complex process with an unquantifiable number of variables, dependencies and unforeseeable risks.
Selecting suitable, flexible funding that understands those points, and crucially can roll with the problems (or the opportunities) as they arise can be the difference between concluding a project successfully or not.
Three things developers should look for lenders to demonstrate when seeking development funding:
- High levels of expertise in Property Development – can the lender demonstrate through it’s people a skill set that is wider than just banking.
- How they will behave when things don’t go to plan – a good lender will have several stories they can tell you about how they supported projects through the difficult period or how they reacted to unusual circumstances.
- That they will place their decision makers on the ground – it is important to have decision makers who visit the site and also work with lenders who challenge the design, the project plan and assumptions very early on in the engagement.
Lenders who can demonstrate those 3 competencies in development funding, are the lenders who are lending to the developer and the project rather than simply lending according to their own rule book. Whatever the cost, this approach should help to ensure a project has the right funding from the outset, which is crucial to the smooth running of the project.
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Richard Joined Sancus in 2016. Richard has 25 years’ experience in financial services and holds an MBA (Dist) from the University of Birmingham. Prior to joining Sancus Richard worked for many large banks as well as independent funders across UK, Germany and the Republic of Ireland.
Richard’s current role is to oversee the UK team and ensure operations run smoothly. Richard feels very strongly about putting others before himself, no matter the consequences to oneself.