05 Sep Property Development Funding Alternatives for Industry Growth
Property development is driven by economic growth. Ironically, property development also drives the economy. Healthy economies are able to sustain this growth. It’s when there are catalytic changes that create uncertainty that property development funding experiences problems.
What’s more, some development projects can take years. When unpredicted catalysts change the face of the marketplace radically, property development funding that is staged can face risks.
Types of Property Development Funding
The property development market experiences slumps and growth in line with other economic indicators. Property developers that prepare for economic fluctuation are the ones that survive them. The way that they access property development funding will be different based on the prevalent economic climate.
Few developers will ever seek funding from high street banks. It does happen, but most developers will seek out traditional resources to the industry. This usually includes private lenders and specialist businesses that lend based on high returns. As the online funding tech age advances and develops greater maturity, crowdfunding and online funding resources have started to emerge.
Alternative Funding Resources
Alternative funding is something that both new and established developers look for. Choices in funding will be based on accessibility to traditional funding, the availability of traditional funding, and the state of the market. Investors that understand economic cycles are sometimes prepared to wait to enjoy a return. There are different kinds of development funding available.
Because every project is going to be different, the approach to obtaining finance will be different too. If the property for development is going to be purchased at auction, then seeking out auction finance will be a critical factor.
Usually, the developer will have only 28 days to settle the payment after the hammer has fallen at auction. The developer will usually have a good idea where they will get the finance and may even be able to obtain a decision in principle. By approaching a reputable broker before the auction, a developer will be able to complete the process more quickly.
Larger developments typically involve multiple sources of finance. These include inter alia, auction finance, mortgage finance, mezzanine finance, and bridging loans. Finding a broker that can source all of these types of funding is important especially when time factors influence the success of the deal.
Although crowdfunding is becoming more popular, it is advisable to seek the advice of an experienced broker. There will be projects that this type of funding is appropriate for. There will be projects that can integrate crowdfunding and mezzanine finance or possibly crowdfunding and mortgage finance.
Speaking to an experienced broker such as Sam Hoban at Belgravia Property Finance, developers are able to determine the best route to take. It is important to get professional advice before a development project is launched, however, should the project experience additional funding needs, professional brokers can help close the gap.