Summary:

Self Build property development finance usually describes finance provided for people who wish to build their own homes or convert or enlarge their own homes. It can apply both to people who physically build themselves and to those who employ builders and project managers.

Although self build finance may appear to be commercial lending, it is a specialised type of residential mortgage. As the lending is given to those who are planning to live in the property, a self build finance broker will need to be qualified differently as the mortgage will be regulated by the FSA. Commercial lending is not regulated in the same way. Your broker will be able to tell you if they are able to advise you or recommend someone who can.

The main difference between an ordinary residential mortgage and a self-build mortgage is that the funds will be drawn down in stages instead of all at once. Usually a third-party surveyor or building inspector will have to sign of the completion of each stage of the build before the next stage of the mortgage can be drawn down.

Generally lenders may offer between 25% and 80% of the value of a building plot and between 65% and 95% of the cots of building. It is often best to look for some sort of flexible borrowing and different lenders will take a different view if you are staying in an existing mortgaged property whilst the house is built.

This is an area for sensible advice and careful budgeting.

If you are a small property developer, you are more likely to need property development finance.

Summary:

Mezzanine Finance in property development finance is often a second tier of lending, usually at a higher interest which may also be convertible into equity. For example, the principal lender may lend 65% LTV on a property with a first charge and the mezzanine finance may provide an additional 20% LTV on a second charge over the property.

Mezzanine finance can be used to fill the gap between primary bank funding and the actual amount required for your development. Mezzanine funding is far more expensive than the initial funding as there is more risk involved.

The advantages of mezzanine finance are:

• It fills the gap between the bank lending and the cost of the development.
• It can provide cash flow at a crucial time in a development and can often be put into place quickly.
• It can allow you to spread your risk amongst more projects and grow a company more quickly.

The disadvantages are:

• It is expensive funding with high interest rates, perhaps 2.5% per month.
• It is riskier then joint-venture funding where profits are shared.
• It is only likely to be available to developers with a good track record.

Mezzanine Finance is complex by definition and the advice of a good independent broker is recommended.

Summary:

Commercial finance brokers can play a key part in helping with your business lending or property development finance. Instead of spending time finding the loan that suits your project or your business yourself, they will find the right lender with full knowledge of your needs. Brokers should also know about lenders who are unlikely to advertise widely.

Whatever sort of business you are running, a commercial finance broker should be able to help you find the right mortgage for your needs. Some examples are:

• Property Development Finance
• Commercial mortgages for pubs, nightclubs, restaurants or guesthouses
• Commercial finance for care or nursing homes
• Bridging finance for auction property or working capital
• Mortgages for commercial investment or buy to let property

A commercial mortgage broker should be an independent professional who is able to search the whole market for you. His starting point should be to understand your business and your needs to save you time, energy and money. A broker will understand that no two businesses are the same and advise you accordingly.

Brokers are not tied to one lender and should have years of experience to advise you.

Summary:

The secret of commercial bridging finance is finding quick solutions for development funding. The bridging finance market is specialised and there are a number of major lenders and many minor players. You can find these directly or be introduced by a broker, who is more likely to be aware of the nature of the lender, especially whether they will perform to your timetable.

Bridging loans and short term finance at a commercial level may be commonly used for one of the following:

• Buying property at auction
• Raising working capital for a business in the short term
• Breaking mortgage chains

Bridging finance will be used by both occasional speculators who spot opportunities and by experienced developers and companies who use them as a regular part of their funding approach.

By their nature, bridging loans are short term with terms ranging from just a few weeks to months or sometimes longer. Sometimes bridging loans can be the initial quick solution but developers know they want to find a longer term solution for more than a year. As speed is often the key factor in a bridging loan, there may not be time to negotiate terms for a longer period and this is where a broker may come in useful. The broker will know lenders who may be flexible in this respect and this will ensure there are not expensive double fees.

Finance will not usually be available for more than 55 – 65% of the LTV, but higher figures are possible if additional security is granted. The best lenders can be known to approve and complete a loan within 24 hours.

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.