ABOUT DEVELOPER EXIT FINANCE
Do you have a project that has reached practical completion or is complete and need to repay your original facility by a set date or secure additional funds to finish and exit?
If so, you may want to consider an exit loan also known as sales period finance, a type of short-term bridging loan that can lower your borrowing costs and allow access to some of your invested capital. In this article we explain how it works, and what benefits it can offer.
FAQ'S ABOUT DEVELOPMENT EXIT FINANCE
What is Property Development Exit Finance?
Development exit finance comes into play when the construction phase is nearing completion, or you’re waiting for sales to finalise. It is a form of complex bridging loan that repays the initial loan facility and raises capital for other purposes once you are close to being finished or completed.
This type of facility isn’t new, but it has become more popular and accessible in recent years. The rise in competition and innovation among specialist lenders has made this financial product more appealing, offering flexible and tailored criteria to meet a variety of needs and preferences.
How Does Development Exit Finance Work?
It works by providing a new facility that replaces the original development finance loan. The new developer exit loan is usually offered at a lower interest rate, as the project is considered less risky once it is completed.
The new facility can have a term typically between 3 and 24 months, which gives more time to sell or arrange a long-term mortgage. The interest on the new facility is usually rolled up, meaning that it is added to the loan and paid at the end of the term.
To apply, some information and documents will have to be provided, such as:
• The details of the existing facility, including the loan amount, the interest rate, the term, and the repayment date.
• The details of the property, including the location, the size, the type, the planning permission, the building warrant, the completion certificate, and the insurance.
• The details of the exit strategy, including the expected sale price, the marketing strategy, and the sales progress.
What are the Benefits of a Development Exit Loan?
One of the benefits is it allows tied up capital to be freed and used for other purposes, such as starting the next venture. This can improve the liquidity and help to seize new opportunities, and can offer several other advantages, such as:
• Reducing the borrowing costs and increasing the profit margin. Switching to a lower rate, can save a significant amount of money on the interest payments, especially if the sales process is slow or delayed. This can boost the profit margin and the return on investment.
• Relieving the pressure of having to make quick sales. By extending the term of the facility, this can avoid the stress of having to sell the within a tight deadline, which may force having to accept lower prices or offer discounts. This can also give more flexibility and control over the sales process, whilst waiting for better market conditions.
What is the lending criteria to consider when applying for Development Exit Finance?
Exit finance is not suitable for every proposal. There are some factors that need to be considered before applying for it, such as:
• Although the new development exit loan usually offers a lower rate, it still comes with some fees and charges, such as arrangement fee, valuation fee, legal fee, and exit fee. These fees may vary depending on the lender, the loan amount, and the loan to value (LTV) ratio.
• A new valuation based on the open market value of the property will be required to assess the current market value and its potential sale price. The valuation will determine the LTV ratio and the maximum borrowing.
• There should be a clear and realistic exit strategy, whether it is selling or retaining, and should clearly demonstrate the ability to repay the new finance from the sales proceeds or by refinancing to a longer term mortgage within the agreed term.
How to find the Best Lender and Deal for Development Exit Finance?
Finding the best deal can be challenging. You need to compare factors like interest rates, fees, finance terms, loan-to-value (LTV), exit criteria, and service quality. A well-connected professional broker can search and source the most suitable and competitive deals in the market, based on the client’s needs and preferences and assist with;
• Preparing and presenting the application and the supporting documents, in a clear and convincing manner. Liaising and communicating with the lender, the solicitor, and the valuer, throughout the process, to ensure a smooth and timely completion.
• Using a professional broker or adviser can save a lot of time, money, and hassle, and increase the chances of getting approved and getting the best deal for your proposal.
REAL LIFE CASE STUDIES
Case Study 1: Urban Apartments in London
A London-based investor had completed a 50-unit apartment complex. Their initial finance facility's high-interest rate was straining cash flow, and they needed more time to secure sales. By securing development exit bridging finance, they replaced their costly finance with a more affordable option, allowing them to extend their marketing period. This led to all units being sold at premium prices within six months, significantly boosting profits.
Case Study 2: Luxury Villas just outside Glasgow
A house builder specialising in high-end semi-rural properties faced challenges selling their 12 luxury villas due to market seasonality. With a developer exit bridging loan, they were able extend their sales period and launched targeted marketing campaigns. The result? The entire project sold out during the peak buying season, maximising returns.
Case Study 3: Mixed-Use Development in Birmingham
A mixed-use venture in Birmingham encountered delays in securing tenants for its commercial units. By leveraging exit finance, this allowed additional finishing touches to be completed and attract premium clients. This was a resounding success, delivering a strong ROI.
HOW TO APPLY: A STEP-BY-STEP-GUIDE
Consult with an Expert Broker
We can guide you through the intricacies of the process, help you explore the type of loan options available, and provide personalised guidance.
Who Is It For?
• Property Developers.
• Landlords & Investors.
Application Process
• Speak to an expert broker.
• Provide Documentation.
• Financial projections.
If your application aligns with the criteria, you’ll receive initial terms within 24 hours. The strategy has a lot of moving parts, preparation and professional guidance are essential for a successful application.
Speak to an Exit Finance Expert
Development exit finance is a viable option for those who want to reduce their borrowing costs, extend their marketing time, and release some of their capital. It can help them transform their sales and achieve their goals. However, it is not a one-size-fits-all solution, and it requires careful planning and evaluation. A professional broker or adviser can help find the most competitive rates and terms.
