What Is 100% Development Finance and How Can It Benefit You?

What is 100% Development Finance?

100% development finance, often known as joint venture development finance, is a robust financing model designed for property developers like you. Whether you’re a first-timer or a seasoned developer running low on funds, this model has you covered. 

It allows a lender to fully fund your project—from acquiring the site to construction expenses—so you don’t have to dip into your own pocket.

Upon completion, the property can be sold or refinanced, and the profits are then split between you and the lender. While the profit-sharing ratios can differ, a 50/50 split is generally the norm. Some lenders might even offer to roll up interest on the loan in return for a smaller profit share.

Not just a financial backer, the lender often takes an active role in overseeing the project’s development, with finances commonly managed through a Special Purpose Vehicle (SPV). 

This model is especially beneficial for larger projects that have a Gross Development Value (GDV) exceeding £1 million and are expected to yield healthy profit margins of at least 25%.

Why Choose 100% Development Finance? 

Going down the 100% development finance route offers you several noteworthy benefits. Whether you’re looking to accelerate your project timeline or mitigate risks, this financing option could be a game-changer. 

Here’s why:

Easy Access to Funds

• First and foremost, 100% development finance gives you immediate access to the financial resources you need. This opens doors to opportunities you might otherwise have to pass up due to capital limitations.

Faster Project Completion

• Having external financial backing can significantly reduce any time delays typically caused by having to arrange personal financing. This allows you to move quickly, seizing those hot property opportunities before someone else does.

Shared Risks and Rewards

• By sharing profits with your lender, both parties are motivated to see the project succeed. This naturally results in a more collaborative and focused effort, minimising the risks involved in property development.

The Power of Joint Ventures

• A cornerstone of 100% development finance is the partnership forged between you and the lender. This isn’t just about money; it’s about pooling expertise, industry contacts, and market insights to achieve a successful outcome for your project.

Keep Your Personal Capital Intact

• Perhaps one of the most appealing aspects is that you don’t have to sacrifice your own capital. This not only safeguards your financial stability but also gives you the flexibility to diversify your investment portfolio or even embark on multiple projects concurrently.

What Makes You Eligible for 100% Development Finance?

Before diving into 100% development finance, you’ll need to meet certain prerequisites. Here’s what lenders typically look for:

Track Record

This financing scheme mostly caters to seasoned property developers who have a history of successfully completing similar projects. If you’re a rookie in the field or planning a small-scale development, securing 100% development finance could be an uphill battle.

Profit Margins

Lenders assess a project’s viability based on the estimated profit margins. They usually set the bar at a minimum of 25% profit. They want to be doubly sure that their investment will yield a worthwhile return.

Planning Consent

Obtaining full planning permission is non-negotiable. This assures lenders that your project complies with local regulations, reducing potential hiccups down the road.

GDV Threshold

Lenders commonly favour projects boasting a GDV of at least £1 million. Projects with higher GDVs say £2 million or above, can make your proposal even more attractive to lenders.

Personal Commitment

Most lenders will ask for a capped personal guarantee, often around 20% of the total loan amount, to secure their investment. This means your assets will back the loan rather than a corporate guarantee.

What You Need to Apply for 100% Development Finance

For a seamless journey through the 100% development finance application process, there’s a slew of documents and information you’ll need to gather. Here’s a rundown of what to prepare:

• Business Plan: Outlines your project’s scope and financial projections.
• Feasibility Study: Shows your project’s financial viability and market demand.
• Planning Permissions: Legal permissions for the project.
• Architectural Plans: Detailed drawings of your proposed build.
• Cost Breakdown: List of estimated costs, including materials and labour.
• Exit Strategy: How you plan to repay the loan.
• Financial Statements: Your current financial health.
• Credit History: Credit reports for credibility.
• Contractor Quotes: Cost estimates from your builders.
• Asset and Liability Statements: Your current financial standing.

Note: Lenders may have different criteria, so it’s wise to consult with your specific lender for their requirements.

Is 100% Development Finance an Option for Beginners?

If you’re a rookie in the property development game, securing 100% development finance can be quite challenging. 

Lenders generally see you as a higher risk if you haven’t completed a project of similar scope before. But don’t lose heart. 

Even if you lack experience, you’re not entirely out of the running. You’ll just need a specialised broker to guide you toward niche lenders who are open to taking on higher risks.

Can a Deposit Fetch You Better Rates?

Indeed, the more skin you have in the game, the better the interest rates you’re likely to get. 

Lending is all about assessing risk. By chipping in some of your own money, you can reduce that risk from the lender’s perspective, potentially unlocking more favourable terms for your loan.

Who Provides 100% Development Finance?

Don’t expect to walk into your local high street bank and walk out with a 100% development finance deal. 

You’ll need a specialised lender or even a private investor for that, and they’re not the kind to advertise their services on billboards. 

Rates and terms can vary greatly in this bespoke market. This is where having a seasoned broker can make a world of difference—they can tap into their network and expertise to secure the funding you need.

What Determines the Cost of 100% Development Finance?

100% development finance comes with its own set of costs and considerations. How much you can borrow hinges on your project’s viability and the lender’s assessment. 

Keep in mind that interest rates aren’t set in stone; they can fluctuate based on the lender, project risk, and current market conditions. 

To snag the best deal, it’s wise to shop around. A finance broker specialising in development finance can connect you to lenders you might not even know existed.

How to Mitigate Financial Risks in 100% Development Finance

Going for 100% development finance is not without its share of risks, so planning is paramount. 

Here’s a quick guide to managing those risks effectively:

• Comprehensive Planning. Carry out a detailed feasibility study and risk analysis before you approach lenders. Pinpoint potential roadblocks, size up market demand, and run the numbers to see if your project holds water financially.

• Diversify Your Funding. Don’t put all your eggs in one lender’s basket. Consider other forms of capital like partnerships or alternative finance options. This diversification helps make your project more resilient and less dependent on a single financing source.

• Keep an Eye on Cash Flow. Consistent cash flow management is critical for your project’s success. Stay on top of it, foresee any possible hiccups, and act swiftly to resolve them. This could involve renegotiating terms with contractors or even securing additional funding.

The Bottom Line

Details are key when it comes to your application. You need to assure lenders that your project is low-risk in terms of construction, sales, and profitability. High-quality information is your main tool for doing this.

While you can’t change your level of experience or your project’s location, you can offer a strong case that shows why this project is a good investment. Your task is to make your vision as clear as possible to the lender.

Your likelihood of approval improves when you provide robust data and a well-organised presentation. So, invest time in perfecting both of these elements.

If this sounds daunting, consider using the expertise of a development finance broker. They can not only help streamline these elements but also match you with lenders best suited for your project. 

Beyond that, they can negotiate favourable loan terms on your behalf and efficiently manage the required documentation. By doing so, they save you time and effort, allowing you to focus on your project. 

Ready to move forward? Get in touch with us. We can link you with a development finance advisor who will help you make the most financially sound decisions for your development project.