Benefits of development-exit finance
Key benefits of development-exit finance solutions include:
- Release capital from your completed/almost-completed projects
- No monthly repayments, repay when your newly-finished properties sell
- Solves issues where developments have overrun and existing lenders are requesting repayment
- Specialist solution for issues resulting from slow property sales
Development-exit finance allows property developers to access the cash tied up in their completed projects so they can release funds to be used for their next scheme. This type of finance provides developers with additional flexibility to pick up their next project or take advantage of additional opportunities.
What is development-exit finance?
Development-exit finance is a specialist type of short-term/bridging finance that is used to refinance a property development project once the development is completed. This type of finance is typically used by property developers who are looking to exit the development project and realize their investment.
Once a development is finished, a developer would typically sell the completed properties and use the proceeds to repay any development loans they have used and settle any other costs. If sales are slow or they need to access cash faster, they may instead use a development-exit facility to raise money quickly and this is repaid when the properties are sold during the term of the facility.
We would typically avoid the need for development-exit finance by structuring development finance at the outset with plenty of time-contingency built in, however some circumstances require this form of specialist solution.
How does development-exit finance work?
The development-exit facility will typically be put in place as a project is completing or after it has already completed. The facility would typically be structured as follows:
- Loan amount: The lender will provide a loan of to a maximum level depending on the value of your finished project. This is commonly expressed as a maximum LTGDV, for example, “70% LTGDV”. This stands for “Loan to Gross Development Value” and means if your project will be worth £1,000,000 when it is fully built, the funder would lend a maximum of £700,000.
- Loan term: The loan will be provided over a fixed term, typically between 6 – 18 months.
- Interest rate: The lender will typically charge a monthly interest rate, which will be calculated on the outstanding loan balance throughout the term of the loan. Rates will typically be higher than the original development facility.
- Security: The loan will be supported by a secured legal first-charge against the property being developed, providing the lender with security in the event of default. If development finance was used for the project, this funder will likely have a first-charge and need to be refinanced with the proceeds of the development-exit facility.
- Repayment: The loan will be repaid as the properties are sold.
- Fees: The lender may charge certain fees for arranging the loan, such as an arrangement fee and/or exit fee. They may require a fresh valuation and solicitors’ charges will likely apply. We will outline all costs clearly so you are fully informed of associated charges and can compare solutions properly.