Summary:
Looking for commercial development finance can be daunting and something of a minefield. There are a whole range of different types of lenders and any number of different solutions which may necessitate mezzanine finance as well. Sometimes the best starting place is to contact a respected firm of commercial finance brokers.
Whether you are looking for a small property development loan of £50,000 or a large scale development finance of £10,000,000 or more, the primary sources of funding are likely to be one of the following:
- The commercial mortgage divisions of the major high street banks.
- Specialised banks with divisions that lend to property developers and businesses.
- Private lenders who are principals in their own right.
The approach that needs to be made to each of these is different, although they will all be looking for security, confidence in the borrower and clear repayment targets. In each case, potential developers can chose to make a direct approach, but often it is far better who have a commercial mortgage broker to act on your behalf. He will not only help you get the best possible deal, but will be able to give you clear and impartial advice about the type of lending that might suit your project best.
Things to consider with each of these types of funding are:
High Street Banks
High street banks are more likely to have some sort of standardised packages, although for larger projects some special terms may be negotiated. These types of large institutions tend not to move quickly and so if there is a need for speedy funding, such as funding approval for an auction purchase, they may not be the best option. In good times, the most competitive prices are likely to be available from these lenders.
Private Banks
Private banks are more likely to be flexible and to move more quickly, but bear in mind that although their level of service can be better, they are often part of a larger group. Consider whether this is the case and whether you are just paying higher fees for a brand name. There are also a few truly private banks where the lenders are the principals. In good times, some of these lenders may be more expensive than the major banks, but this margin changes in times of recession when the major banks also tend to be cautious.
Private Lenders
There are any numbers of funds and lenders who are principals in their own right or have a war chest of funds to lend at any one time. Sometimes such lenders can be swiftest to make decisions and arrange draw-down of commercial lending, but they may also want a greater share in the potential profits of the project especially if interest is rolled over until the development is sold. Many such lenders do not advertise on the open market and can only be accessed through a good broker.
