Get fast & affordable property construction finance to build your company’s future.

The United Kingdom government introduced the Right to Build Act in April 2016 to aid small property developers and other people to purchase land and build efficiently. However, purchasing land and further construction is a very expensive initiative. Looking for and requesting lenders is a daunting task. This is where finance companies stepped in to offer construction loans. They allow you an excellent opportunity where you may get a terrific profit without investing your life’s earnings in the construction.

A construction loan is available in two forms

Bridging Finance

These are short-term loans explicitly given to fill the gap in existing funds. In this case, builders do not meet to provide a complete construction portfolio. However, lenders will still check thoroughly, and builders should have a well-made proposal that is properly packaged. The finance provided through bridging loan is upto 65% of the value of the development. The funds are delivered within 2-3 weeks, and the loan repayment time can be from a month to upto three years.  

Joint Venture

In this, you work with an experienced builder. You use your own resources to use the builder’s knowledge and support to secure the loan. This will give you about two years worth of funding. The finance range is between £150000 to £2000000, almost 50% of the construction’s gross development value, a contribution in the purchase amount, and 100% of the construction costs. 

Gross development value is when the project will be worth it once it is completed and in the market to be sold. Some companies may also ask for a share in the profit of the project. 

Almost every loan from every finance company has an interest applied on the borrowed money. Construction loans are generally interest-only loans, i.e., you continuously pay the interest and pay the loan amount once the project is completed. The interest rate is dependent on two factors – the size of the development and the potential risk taken by the lender. Usually, you get about 70% of the gross development value of the project.

The time is entirely dependent on how well the proposal is packaged. You should have a detailed plan for construction, a well-planned timeline, realistic gross development value, and a decent credit score. This will allow you to get the construction loan within 1-2 days. If the proposal is high-risk or lacks necessary documents, the loan will take longer to be approved.

Although the amount provided by the lenders is vast, you are not required to give extra security. Instead, the property that is being constructed is considered a guarantee by most finance companies and lenders.

The same case is for vehicle and equipment leases. They are all also dependent on the asset that is financed, and additional security isn’t required.

Primarily, finance companies wish to see experience. They need to be assured that the applicant fully understands the actual costs involved in the project, the problems that may occur, and the risk associated with the development. They need to know that the applicant can’t be trusted to maintain composure during the project development. This is because inexperienced builders often do not know the total cost of planning and construction. They use a somewhat optimistic view that works against them in the application.

Since a construction loan is a rather significant investment, it must be a proper business plan with a complete Deadline. It cannot be a simple proposal. It should contain the following details – 

  • The documents of existing property or purchase plan for new land
  • Cost of construction
  • Costs that will occur in professional fees i.e. finance, insurance, architects, surveyors, marketing etc. 
  • Details of any legal issues with the construction and a plan for the resolution of the legal issue.
  • A structured exit plan is detailing whether the property will be on sale or lease. Or if the builder’s family will use it. Details on how the loan will be paid off, either with the profits from the sale/lease or through conversion to a mortgage. 

The interest rate affects the profit gained. To avoid excessive interests, your broker will help you work with the lender or the finance company. You may also negotiate some terms with the lender while signing the agreement. They may be – 

  • Staged drawdown

In this, you will only take money from the lender when you or the project requires it. This way, you will not continuously pay interest on the loan. This is especially helpful if there are delays in the Deadline. The builder will not be forced to pay interest for the stage that hasn’t even started yet. 

  • Length of the facility

Request the finance company or the lender to give some flexibility to the deadlines. There are almost always delays, even with the strictest scheduling and best managers. The projects usually run over time. Negotiate with the lender to extend the time with no extra interest for the loan’s easy and early settlement. 

  • Highest Loan-to-Value 

Discuss with the broker to secure more finances than the general percentage prescribed by the finance company. This allows more cash flow and more accessible construction. An extremely tight budget sometimes results in overdrawn accounts.