The more and more we speak to developers there seems to be a common theme coming out. That message is that they would like to develop more sites but don’t have the cash flow and they don’t truly know what finance options are actually open to them.
We find that many developers are still relying on clearing banks for their development finance despite the availability of flexible finance products from what are referred to as ‘second-tier lenders’ and often there is a price to pay for.
Why Cheapest Finance isn’t always best
Yes we know that High Street Bank finance is often the ‘cheapest’ but that is only part of the story. The other part of the story is that offers of finance from clearing banks can take months to arrive (if at all) and you are not dealing directly with a decision maker. Most importantly perhaps is that they require a much higher cash input from you than the many specialist lenders in this sector.
This practice of low loan to cost lending starves your business of vital cash that could perhaps be better used in acquiring and developing other sites leading to an increase in your profits that more than compensate for any higher finance costs paid.
In addition, clearing banks typically lend just 60% of the construction budget meaning you have to find the other 40% throughout the entire project thereby putting further pressure on your cash flow – particularly if you are relying on revenue from sales of completed units elsewhere.
Utilising ‘second-tier lenders’ provides you with not only higher LTC / LTV funding lines, thus reducing your initial cash input but, they also fund 100% of the build costs which reduces the pressure on your cash flow.
Whats the answer?
As leading brokers of Development Finance, we are uniquely placed to make available to you the many, many finance products on offer from some 100 specialists lenders in the market.
Some of these lenders even advance up to 90% of ALL costs (and beyond on a JV basis), so when compared to a typical High Street Bank facility, the cash you have available can be made to work that much harder by spreading it over say two or more projects at the same time.
So for example….which would you prefer?
- Invest £2m in a project for £1.5m profit
- Invest £600k for £1.5m profit
We think the answer is obvious so why note get in touch with us to discover what you may be missing out on and how it can help you make more profits this year.
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