With the announcement that one lender is retracting from the property market, we thought it timely to remind ourselves of the basics required to raise some capital for the small business developer.
Things to consider:
- Our lenders and bridging financiers do expect you to have some skin in the game typically representing between 35% (property) to 50% (land). This can be funds from your savings, co-investors or maybe raised through unsecured private equity funding. In any event, our lenders will typically take a first charge over the property being developed or funded. Alternatively, if you have other property where a charge may be taken, then the possibility of borrowing up to 100% of the requirement exists.
- Funds may be borrowed to purchase and convert property, or to purchase land, or build from the ground up. Lenders will take a view on whether the change of use is appropriate; if the work is light or moderate; and if a ground up development is considered, then they will fund in stages (in arrears).
- Most of our client developments are under the control of an SPV, often formed for the specific purpose of the project. Some borrowers manage more than one asset through a holding company, and in those cases we can underwrite the business and not just the transaction. In some cases this may prove valuable, particularly if the commercial loan is structured using the assets of the business and not simply the transaction.
- Having a plan is important. Nobody really wants a detailed financial plan – but a simple cash flow projection will always add value to the proposal. Having a thought-out exit plan is critical. As is having a back-up plan! No two transactions are the same, and you may want to hold some properties, refinance or sell to exit. You may want a short term loan with interest rolled-up, a long term mortgage or some other structure – or for a smaller amount maybe an unsecured facility.
- Finally, the lenders will want to know that you have some skills or experience. If you are new to development, the expectation will be that you will have a jv partner working with you who may add value to the process and has demonstrated successful builds, or flips in the past.
Borrowing money is not a minefield, and nor is it particularly arduous – even if some lenders are still mired in red tape! We are here to talk and walk you through the process, and will endeavour to do what we can in our small way to contribute in making your plans and dreams a reality. We specialise in unregulated funding to businesses, and regulated residential second mortgage lending.
Accessfunds are delighted to work with numerous lenders.
accessfunds, helping small businesses unlock opportunities.