5 Star Rated Service
Supported 1,000+ Directors
A guide to commercial property development finance
Understanding commercial property development finance
Commercial property development finance provides the funds for property developers to purchase and develop business premises to ultimately sell or rent commercially on completion.
The funds can be used to pay for land and building and development costs as well as legal and other administrative fees that are associated with the process. This type of finance is typically offered by lenders on a short-term basis of between 12 and 36 months.
How does commercial property development finance work?
Financiers will estimate the value of the completed project and offer a loan based on that and other factors, including the developer’s experience. Funds are released in stages so that if you’re using the financing to purchase land, the lender will release this first.
Property development loans are usually paid back once the project is complete, with interest generally being charged only on those funds released rather than on the entire loan.
What do commercial lenders consider before sanctioning a property development loan?
- Gross Development Value (GDV): GDV is the projected value of a completed property development. It highlights how much the property is likely to be worth on the open market and is a key figure for lenders and borrowers alike.
- Current site/property value: commercial lenders will consider the location and cost of purchasing the existing property, as well as whether planning permission is required/has been obtained
- Total build and development costs: a full breakdown of development costs and professional fees will be required
- Details of personnel involved in the project: this includes the main contractor and project manager, as well as architects and engineers
- Previous experience in development: your previous experience as a commercial property developer will be taken into account, and the success of any former projects, if appropriate
- Loan to GDV: the ratio of your desired amount of funding to the Gross Development Value of your project is a key element when sanctioning a loan
- Plan for your project and how you intend to exit: your project timeline is taken into account and how you’ll repay the finance when it’s complete
What are the advantages and disadvantages of business property development loans?
The staged release of funds means that financing is made available as you move through the development project so you only pay interest on the amount received. Interest can also be added to the loan in some cases, so it doesn’t become payable until the project is finished.
A further benefit is the speed with which this type of funding can be secured. It’s generally fast to obtain and so provides the momentum you need to push your commercial property project forward.
A potential disadvantage of commercial property development loans is that some lenders charge higher interest rates. This is typically due to a range of factors, including the high loan amounts provided and the speed with which they’re made available to commercial borrowers.
To find out more about funding your commercial property development, please get in touch with us at UK Business Finance. We cover the whole of the market and can ensure you have access to the best deals.
Contact us for more information
- Fully Independent
- Whole Market Access
- Matchmaking Process
Matt Cluer
Finance Expert
Matthew has over 15 years’ experience of working alongside businesses across the UK supporting directors, shareholders, and key stakeholders. At UKBF Matthew works tirelessly to secure the funding companies need when they need it. Adept at raising finance through invoice and asset-based lending, crowdfunding, loan and equity funds as well as Government schemes, Matthew is perfectly placed to help your business access the funding required whether for general working capital, or to embark upon an ambitious growth and expansion project.
Top Finance Tips
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Why use a commercial finance broker?
A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
What are cash flow forecasts and why are these important when obtaining business funding?
Operating with positive cash flow helps your business to pay its bills, conduct day-to-day trade with minimal issues, and plan confidently for the months and years ahead. But how do you know that there will be sufficient cash available when it’s needed?
Good debt vs Bad debt
Managed well, debt can improve your credit rating, enable expansion, and stabilise cash flow. It’s the backbone of growth but with so many different types of borrowing now available, it’s important for your business to carry ‘good debt’ rather than ‘bad debt.’
How to best prepare my company for a finance application
When preparing your company for a finance application, it’s key to present the business in its best light whilst also providing realistic projections, your plans for the funding, and how it will help the business grow.