As a borrower, you may be looking to make some money through property or take the next step after reinvesting. Property developments are a solid investment but they do require accessing large sums of money not easily given out by lenders. This is why you need to engage an experienced development finance broker such as Melbourne Finance.
If you are thinking about accessing cash flow to finance your development, this is a quick guide to help you get started.
What is development finance?
Development finance provides a source of capital for comprehensive upgrades and major new building projects. Without existing equity or collateral, it can be challenging to obtain finance. Generally, development loans are short term loans for 6-18 months and are interest-only drawdown loans to provide both security to the borrower and the lender.
What do I need to know prior to my first meeting with a lender?
Lenders like to know they are going to make money, not lose it. So, with development finance, you need to provide proof that you will receive a return on investment. Lenders closely assess every application for risks and pitfalls. To get onside with lenders you need to be prepared and knowledgeable about every aspect of your project.
Here are our top tips for a successful application.
Knowing the bank’s interests.
Every bank has different values and interests. For example, Westpac promotes commercial development and is therefore more likely to help finance an apartment building with commercial opportunities. On the other hand, Bendigo Bank likes to promote community spirit so will often look for opportunities that include sports fields, leisure and community centres.
Have an excellent credit rating and a great track record.
Lenders like to see that you know what you are doing, that you have borrowed before and that you have repaid it in an efficient manner.
Show the project’s feasibility.
Most lenders expect risk but they will still want to know how and when you intend to pay back their loan. Showing the feasibility in your project and the ability to sell the property or retail space is crucial to obtaining a development loan.
Prove that you have fallback funds as lenders usually only supply 60% of what you need to invest.
Have a financial expert on your team.
You are not expected to know everything about finances, but you should have someone such as a development finance broker on your team. This way you can ensure legal compliance across every aspect of the loan and that you are getting the right type of finance for your unique project.
When can I apply for a development loan?
There are a lot of times you can apply for a development loan but it depends on how much interest you are willing to pay and when you are going to need the funds. Three of the most common times to apply for a development loan include: at acquisition, construction and for investment.
- Acquisition loans help secure the purchase of the land.
- Construction loans are the most common as they are intended to cover the project’s building costs.
What documents are needed to acquire my development loan?
Just like any other loan, there are some required documents that you will need to prepare.
Some of these documents include:
- Building regulations
- Valuation of the estimated value
- Predicted build time as well as an outline of dates of when stages will be completed
- Build Cost
- Experience in building developments
- Building Plan
- Planning limitations
- Information about professionals involved
- Zoning details
Our advice is that instead of preparing each document individually, create a comprehensive and exciting business plan. This way you can get lenders intrigued about your project and ensure you have completed all of the application requirements. A business plan will also help you sell the land or commercial space you intend to develop.
How can we help?
At Melbourne Finance, we help everyday people achieve their financial dreams, including development finance. Our team has expert development finance knowledge to help you navigate the application process to successfully fund your project. Get in touch to find out more.