From navigating risks to getting to grips with your capital stack, here's what you need to know about submitting the best possible property finance application.
Property development relies on secure funding to flourish. For most of us, the bank loan is the largest part of your capital stack and forms the foundations for your project to get underway. However, with a highly competitive market and lenders who scrutinise every decision based on risk versus reward, how can you as a developer make sure you get the right attention from lenders so you can reduce your own equity investment.
Lenders can be stringent with their requirements - they will generally assess every part of your application, which means they’ll be looking for evidence of past development performance, good credit, what work has already gone into the site (sweat equity) etc. As a developer looking for financing, you have to acknowledge the fact that the lender is going to try to build as complete a picture of your proposed project as they can.
Knowledge is key
We’ve created a suite of resources here on our site around commercial property development finance. By reconsidering your finances from a ‘can I afford to build it?’ viewpoint to a ‘how will a lender view this project?’ you can align your commercial or residential development application with a lender’s main concerns.
All the information they require is available in the public domain in some way, but why make it harder for them? If you take the time to build an understanding of your own finances, you can gather the materials a lender may need to make their job easier and create a more positive relationship.
More than big lenders
Many of these alternative lenders and potential funding sources operate under non-traditional structures. This can make it hard for you as a developer to understand the offer put in front of you, which makes it valuable to choose a broker who can help you navigate this vast market and find funding options that suit your project and goals.
Many developers stick to the larger banking institutions or experienced lenders in the construction sector. However, the growing world of finance includes many alternative lenders to those that were available just a decade ago.
You may also find that combining a number of smaller lenders in your mezzanine debt can help get your project off the ground: but you also need to understand that doing so generally means a different repayment structure or sometimes even profit share on the completed building.
More than big lenders
Working with a brokerage like Sardison Capital will help you map out your risks and create plans to mitigate them so that ultimately, you’ll approach a lender in as strong a position as possible. Bring a risk mitigation strategy with you and expect the lender to add their own insight.
Any investments are, by their very nature, risky. They can deliver returns or losses to the investor and therefore, anyone looking to get involved wants to weigh up those risks against their potential return. In property development finance, things are no different: there’s still plenty of risk despite the perceived ‘safety’ of property. Delays, accidents, shareholder disputes etc can all impact your project.
Show your lender that you have an idea of all the risks and how to manage them and you’ll give them more confidence in their investment. For example, have you already secured planning permission? Or is the planning application set for completion and submission after you secure the development finance loan? Do you or any of your partners have a strong credit score, or is this an area of concern for your lender? Like we said earlier, trying to hide anything from your lender is a bad idea and being proactive helps strengthen your case.
Be confident in your business and offer a guarantee
Providing some form of guarantee to your lender helps them take your application seriously. If you cannot offer a guarantee, consider instead how you could build a security package to help alleviate the lender’s risks - with something such as charges over property you already own, other assets or cash on account.
Getting in front of lenders is a battle in itself - so help your case by using Sardison Capital to build an attractive application. Choose us as your lending partner and we’ll work through the whole-of-market to secure the best funding packages available for your property development project.
Speak to the team at Sardison Capital before your lender so we can walk you through guarantees and security packages and how they may affect your application. By offering certain securities you may be able to get a better rate and make your project more profitable.
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