Stretched Equity Finance is a relatively new product that is designed to provide a developer with a higher loan amount than is the norm in the market place.
Typically a loan from many development finance lenders is limited to 50% – 55% of the GDV whereas a ‘stretched equity loan’ can take this up to 70% to 80% of GDV. Indeed some lenders will advance loans as high as 80% of costs and even up to 100% of land and construction costs.
Stretched Equity Finance works by combining a blend of prime bank finance at a lower rate with higher risk finance (equity or mezzanine finance) at a higher rate. The two rates are usually ‘blended’ together to form one average rate. This makes it easier for the developer client to understand more clearly what the actual pay rate is compared to say a prime loan ‘topped-up’ with mezzanine finance.
- Developers need only to find 10% or even 0% of costs for a project
- This type of funding allows developers to earn a much higher return on their capital employed (see Mezzanine Finance) a very important consideration for any business
- Enables a developer to retain much needed capital for other projects or for the acquisition of other sites or simply for cash flow
- Loan term from 12-24 months
- Available to WHOLE of UK as long as demand is proven
- New Build Houses (including phased developments), Flats, Conversions including permitted developments and on occasions sites with a commercial aspect may be considered.
- Experienced developers only with appropriate track record and must be a Limited Company