How to Get Developer Exit Finance: A Complete Guide.
Property developer exit finance also known development exit finance is a specialized type of funding that developers use to refinance their development loans when a project is approaching or has reached practical completion, but before they have sold all the units or properties.
Property developer exit finance offers numerous benefits, including reducing financial stress, increasing flexibility, and potentially freeing up capital for other projects.
However, securing development exit finance involves understanding the nuances of the lending landscape, preparing the right documents, and presenting a compelling case. In this article, we will explore how to get development exit finance and navigate the process smoothly.
What is Development Exit Finance?
Development exit finance, also known as development exit loans, is short-term funding provided to developers who have completed a construction project but need additional time to sell all the units or properties.
These loans typically replace the original development finance, allowing the developer to pay off the higher-cost development loan while waiting for the properties to sell.
The term for development exit finance is generally between 3 to 18 months, and it is designed to provide breathing space for developers without the pressure of having to sell units or properties at a lower price just to meet impending loan repayments at high interest rates.
Why Consider Developer Exit Finance?
Before diving into the steps to obtain development exit finance, it’s important to understand why it might be the right choice for you:
Reduce Financing Costs: Development loans usually come with high interest rates. Development exit finance, on the other hand, often offers a lower rate, reducing overall financing costs.
Extend Time for Sales: With the clock ticking on a development loan, developers may feel rushed to sell properties quickly, potentially at a lower price. Development exit finance gives them more time to sell at a favourable price.
Free Up Capital: Development exit loans can release some of the capital tied up in a project, allowing developers to invest in new opportunities while they wait for sales to complete.
Steps to Secure Developer Exit Finance
Securing development exit finance involves several steps, each of which is crucial to getting the best terms and ensuring a smooth transition from your existing development loan.
Evaluate Your Current Financial Situation: It’s essential to have a clear understanding of your current financial situation. This includes knowing the outstanding amount on your existing development loan, the current market value of the completed development, and any projected sales timelines. Be prepared to provide detailed financial statements, cash flow forecasts, and an overview of the development.
Prepare a Comprehensive Exit Strategy: Lenders want to see a well-thought-out exit strategy that demonstrates how you intend to repay the development exit loan. Your strategy should include a realistic sales timeline, projected sale prices, and contingency plans if sales take longer than expected. The more robust your exit strategy, the more confidence lenders will have in your ability to repay the loan, which can lead to better terms and lower interest rates.
Gather Necessary Documentation: Lenders will require specific documentation to assess your eligibility for development exit finance. Commonly required documents include:
A detailed development appraisal: Highlighting the project’s profitability.
Valuation report: An independent valuation of the completed development.
Sales evidence: Any agreements or ongoing negotiations for the sale of units.
Financial statements: Including profit and loss statements, cash flow forecasts, and any other relevant financial data.
Proof of planning and building regulation compliance: To ensure that the development is fully compliant with local regulations.
Present a Strong Application
Your application should clearly communicate the benefits of the development, the expected sales outcomes, and how the development exit finance will help bridge the gap between completion and final sales. Highlight the quality of the project, market demand, and the strength of your exit strategy. A well-structured and detailed application can significantly increase the likelihood of approval and favourable terms.
Negotiate Terms and Conduct Due Diligence
Once you have received offers, take the time to compare their terms, including interest rates, fees, LTV ratios, and any covenants or conditions. Negotiate where possible to secure the best deal. Ensure that you fully understand all terms and conditions to avoid any surprises later. Due diligence is crucial to ensure that the loan terms align with your financial goals and project timelines.
Close the Deal
After selecting the best offer, proceed with the legal process to finalise the loan agreement. This will involve solicitors who specialise in property finance to review contracts, carry out any required checks, and ensure all conditions are met before funds are released. Once everything is in order, the new loan will replace the existing development loan, and you can focus on selling the remaining properties without the pressure of a high-interest loan.
Getting Development Exit Finance
Securing development exit finance involves several steps, but with the right approach, property developers can access the funds they need swiftly and efficiently.
Reach out and give us a call, at Evolve Finance we specialise in and understand how property development exit finance throughout the UK works and can guide you through the intricacies of the process, helping you explore all available options.
Conclusion
Development exit finance can be a game-changer for property developers looking to reduce costs, manage cash flow better, and avoid rushed sales. By understanding the process, preparing a compelling application, and choosing the right lender, developers can effectively leverage development exit finance to their advantage and maximise the profitability of their projects.