"Unlike development finance, which is used to fund an entire project, development exit finance is used to pay off any existing development finance loans with a lower rate exit loan before a property is sold."
One of the many concerns property developers face during any type of build is the rising and ongoing costs encountered during the build process. In many cases these are often expected, while in others, unforeseen delays due to operational and supply challenges can lead to the rapid depletion of contingency funds and concerns over escalating build costs.
This level of uncertainty can cause unnecessary stress for all those involved and can also have an impact on the planning and funding of any future projects, which is where a development exit finance loan can prove a useful financial tool for developers nearing the end of a build.
Development exit finance is a short-term bridging loan specifically used by property developers looking to save costs and maximise their profit opportunity mid-way or towards the end of a development.
Unlike development finance, which is used to fund an entire project, development exit finance is used to pay off any existing development finance loans with a lower rate exit loan before a property is sold.
This can help developers navigate the pressure of sales deadlines, reduce costs, and release additional capital ahead of a sale which can then be put towards the funding and planning of any future project.
For example, a development exit finance loan can be used by developers to save money while they wait for a property to sell. This can prove particularly attractive for those with a bespoke high value property aimed at a smaller group of potential buyers, as it will enable them to pay the lowest rate possible while it is on the market.
This type of funding can also prove useful in situations where it is looking unlikely that the property will complete and sell before the end of the loan term. In this case, a development exit finance loan can prevent the need for the developer to drop the price to secure a quick sale in order to repay the finance.
Instead, they can take out a development exit finance loan to pay off an existing development finance loan and gain the flexibility and financial security they need to ensure the project is finished at a high standard and sold for its full value.
Another way in which development exit finance can be used is as a means of realising the capital from the completed project and using the funds to invest in a new project straight away. This can prove highly beneficial for those developers looking for a seamless transition between projects.
Although there are a few key factors in determining how much a developer can borrow, loans of between £100,000 and £25 million are standard across the industry with LTVs of up to 75% often available.
Loans are calculated on the basis that the majority of work on the existing project has been completed which presents less risk to the lender and therefore makes them cheaper. Repaying the development finance loan early also means any interest payments are immediately stopped, saving the borrower a significant amount in monthly interest charges.
Understanding this niche area of the specialist lending market can be difficult for those unfamiliar with how the sector works, which is where master brokers such as Clever Lending can help.
By referring these cases to us, brokers can rest assured that their clients’ needs will be met; enabling them to reduce costs and provide a boost in cash flow without having to wait until a sale has been completed to access funding. This enables the referring broker to focus on other areas of their business while still being remunerated for the referral.
