By Paul Keay – Property Development Director – United Trust Bank
Although the High Street Banks still show little sign of increasing their appetite for development finance, some lenders, such as United Trust Bank, continued to fund developers throughout the credit crunch and are now increasing their business as the demand for new housing grows.
However, obtaining development finance is no longer a simple matter of flashing the deeds to a plot of land in front of an eager lender’s eyes. Too many bank managers had their fingers and balance sheets burned by throwing money at projects which were given no more than a cursory once over. ‘The market is booming’ they thought, ‘what could possibly go wrong?’ We all know the answer to that question and the larger Banks are still very wary of making the same mistake again.
A skilful broker can be a great asset to a developer seeking finance. They can help to identify the right lenders to approach and then facilitate the flow of information between the developer and the funder. They can also help all parties to form a strong and trusting relationship to last the lifetime of the project. For developers there are some golden rules which will greatly increase the broker’s chance of making a successful development finance proposal.
Development finance lenders are generally curious by nature so providing an application with extra detail and supporting information will be of much greater interest to them than a sheet of A4 with some rough sums sketched out. The days of a one paragraph email or “back of a fag packet” approach are long gone. Nowadays we are looking for a thorough and well researched development appraisal including a build cost breakdown, a schedule of specification and cash flow forecasts. Show us how the developer sees the project working and we’ll apply our own expertise and knowledge to decide if that’s achievable.
Lenders want assurance that the developer and contractor (if they’re employing one) have the sufficient experience and skills to complete the project successfully. A ‘CV’ of the developer’s previous projects including specifications, sales particulars, photos and prices achieved compared to the original plan will help to convince the lender that the developer knows their stuff. If the developer is employing a main contractor show the lender that they too have a strong track record of delivering a quality product on time and on budget. United Trust Bank is always keen to work with developers with a strong focus on great design and quality, so if the developer is proud of their previous work, show it off!
You’ll also need to show that the developer understands the strengths and weaknesses around the location of the development and how the project fits in to the locality. Are there good transport links and local amenities? Why will buyers come and buy the homes? Does what’s being built have an existing demand or are they trying to add diversity? The latter can be more risky but that’s not to say it shouldn’t be encouraged when other factors seem to signal that a well planned development could create its own demand. The developer should trawl the local estate agents for market intelligence, details and selling prices of comparable properties, and aim to become an expert in property prices for that location.
Then there’s the very important subject of ‘financials’. How much cash is going in from the client and where is it coming from? Provide details of any additional resources which may be called upon to cover any unforeseen problems or delays which may give rise to additional costs. Include details of other ongoing projects and current facilities with other lenders. Show us a breakdown of the borrower’s current assets and liabilities so that we can see the whole picture and are fully aware of any exposure elsewhere. Providing this level of detail at the outset demonstrates to us that your client is prepared to be completely open and honest with us. That’s something we’ll want to see from a development partner.
So there you have it. The key to a successful development finance proposal is to prepare a presentation that is well researched, informative and honest. Think of the questions you’d want answered if you were being asked to hand over a significant sum of money and be precise in your answers. Impress us with the developer’s knowledge, ambition and attention to detail and your chances of securing a development finance loan for them increase immensely.