Development Finance for Property Entrepreneurs
There is a lot of money to be made in property development – but it requires a huge amount of upfront capital.
Development finance bridges the gap for ambitious property developers to take advantage of financial leverage to break ground on their projects and keep them moving.
- Loan from £25k to £5 million +
- Trusted by 500+ UK business owners
- Same day decisions
- Bad credit accepted
- Flexible repayment terms
How Can Development Finance Support Your Project?
Improved Cash Flow = Fewer Delays
Development projects stall when cash flow stops. Whether you need £250k or £2.5 million for your project - having the cash available when you need it avoids delays in timelines and your profits.
Increased Buying Power
Having upfront capital gives you options. Negotiate better rates with suppliers or a better deal on your land by having the capital you need at your fingertips.
No Drawn Out Approval Process
Unlike traditional banks, we don’t wait around to give you a financing decision. You’ll know within days if you’ll be approved for funding. Don’t let another golden opportunity pass you by.
What is development finance?
Development finance is an alternate funding option for property developers. Designed as a short-term funding solution, development finance provides quick capital to purchase land, fund construction costs, and cover associated expenses.
Residential development, commercial development finance, infrastructure development – you name it, development finance can help to fund it. Lenders will assess projects based on their potential rather than just their current value, making development finance an essential tool for property developers looking to expand their portfolios when they don’t have the cash upfront.
What Do I Need When Applying for Development Finance?
To secure development finance, applicants must provide:
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Detailed Project Plans:
The more detail you can give - from market demand to your financial projections - the better. Lenders need to see you’ve done your homework. -
Financial Projections:
Break down your costs, have a contingency plan in place, and know how you’ll exit when the time comes. -
Previous Experience:
If you’ve nailed past projects, make sure to highlight that. A solid track record makes lenders trust you more. -
A Relationship Manager:
Many lenders like having someone in your corner to manage the process and keep everything ticking along smoothly. -
Helps Build Business Credit:
Timely repayments on a secured loan improve credit ratings, making future financing easier and more favourable.
For a more detailed guide on how to apply for property development finance, read our helpful guide.
Founder and CEO, Funding Guru
Thoughts from Matt
“Got aspirations to be a property developer? Development finance will help you on your way. But it’s not for the faint-hearted. Development finance is used for big building projects and you will likely face many complexities and delays on the way.
Ideally, you will have had plenty of experience in property renovation before you apply for development finance. If you’ve got any questions, speak to a member of our team and we can talk you through your options.”
How Does Development Finance Work?
Unlike traditional mortgages, which are based on the existing value of a property, development finance is structured around the projected total value of the development once it’s completed, known as Gross Development Value (GDV).
The amount you can receive in a development finance loan depends on factors such as the Loan to Value (LTV) ratio, the viability of the project, and your development track record. If you’re a first-time developer, it’s not impossible for you to get funding, but you’ll likely need to put more time into your proposal and may be subject to higher fees.
Developers receive funds in stages as the project progresses. This reduces the risk for the lender and ensures funds are allocated efficiently and you have the capital you need, when you need it.
Development finance is typically repaid once the project is completed and sold, refinanced, or transitioned into an investment property.
Application Process for Property Development Funding
1. Prepare Your Development Plan
This is the most crucial stage. Lenders need confidence in your project, so gather detailed plans, market research, demand insights, and financial projections.
2. Apply Online & Submit Your Proposal
Start with our one-minute enquiry form. Then submit a full application with timelines, projected costs, and how much funding you’ll need and for how long.
3. Valuation & Funding Offer
We’ll conduct an independent valuation to assess project viability. If approved, you’ll get a clear funding proposal with timelines, repayment terms, and fee breakdowns.
4. Receive Funds & Complete Project
Initial funds arrive in days, usually covering the land/building purchase. Additional payments follow as the build progresses. Repay once sold or refinanced, typically within 6–24 months.
Can First-Time Property Developers Get Development Finance?
While it’s not impossible for first time developers to gain funding, it can be more difficult. Development finance uses a developer’s track record of completed projects as a factor when determining the conditions of the loan.
If you’re developing for the first time you may face stricter lending criteria, lower loan-to-value ratios, or be asked to provide additional security. However, a strong development plan, solid financials, and an experienced team can help strengthen your application.
The Different Types of Development Finance
Residential Development Finance
Residential development finance is exactly what you would expect: designed for building or renovating houses, apartments, or mixed-use developments. This type of finance helps property developers fund projects aimed at private buyers or rental markets.
Senior Debt
This is your main pot. It covers the big-ticket stuff like land acquisition and build costs. Lenders will typically finance up to 65% of the Gross Development Value (GDV) so it’s a solid funding choice to get you moving.
Mezzanine Finance
Need a top-up without giving away equity? Mezzanine finance bridges the gap between senior debt and developer equity, giving you more borrowing flexibility without losing ownership.
Stretched Senior Debt
This is the option for developers willing to take a risk. Offering higher leverage than traditional senior debt, stretched debt increases your Loan-to-Value (LTV) ratio but at higher interest rates.
Bridging Loan
This is the option for when you’ve completed your build and need to pay off the money you owe. Bridging loans help developers to sell the property or transition to a long-term mortgage after project completion.
Development Exit Finance
Development exit finance buys you time if things aren’t going exactly to plan with the sale. Helping to refinance existing development finance, exit finance provides additional time to sell residential property and improve cash flow.
Commercial Development Finance
Commercial development finance is for developers making big moves with large-scale projects like office buildings, retail spaces, and industrial units. It’s meant to support significant infrastructure growth and business expansion.
Senior Debt
Working in the same way as residential developments – senior debt is your main source of firepower for a commercial build. It’s cost-effective and covers your major expenses such as infrastructure development, land purchases and construction.
Mezzanine Finance
Functioning in the same way for commercial as residential – mezzanine finance fills the funding gap in commercial development finance, allowing developers to borrow beyond senior debt limits while reducing upfront capital investment. Perfect when you want to protect equity but still go big.
Joint Venture Funding
Team up with an investor, share the risk — and the reward. Ideal if you don’t fancy taking on the full financial risk of your project, joint venture gives you a partner to share the load with.
Bridging Loan
Short-term cash to bridge the gaps post completion. Bridging loans give you breathing room when awaiting long-term funding or project sales.
Commercial vs Residential Development Finance
The only significant difference between residential and commercial development finance is the purpose of the development. Both types of funding have:
| Residential Development | Commercial Development | |
| Purpose | Houses, apartment blocks, and mixed-use spaces (with a residential element) | Office buildings, retail spaces, industrial units, and large-scale commercial projects |
| Maximum Loan Value | Up to 70–80% of the land cost, and up to 100% of the build cost | Up to 70–80% of the land cost, and up to 100% of the build cost |
| Term of Loan | 6 to 24 months | 6 to 24 months |
| Repayment Strategy | Sale of units, refinancing, or switching to a residential mortgage | Sale of completed commercial units, refinancing, or long-term commercial mortgage |
| Exit Strategy | Often relies on high buyer demand or quick sales in residential markets | Typically depends on lease agreements or refinancing based on projected rental income |
| Interest Rates | Slightly lower due to lower perceived risk | Typically higher due to increased complexity and market volatility |
| Valuation Approach | Based on expected sale price of finished residential units | Based on rental yield potential and projected commercial property value |
| Loan Complexity | More straightforward, especially for standard residential builds | More complex, often involving larger sums, more due diligence, and longer underwriting |
How much can I borrow through development finance?
For the right project you can typically borrow up to 70-80% of the land cost, and 100% of the build cost. The funding is likely to be short-term, and you are expected to repay the loan when the project is completed.
Factors That Impact How Much You Can Borrow
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Loan to Cost (LTC) :
This is the percentage of your project costs that we could be willing to fund. This includes purchase price, stamp duty, legal fees and build costs. -
Loan to Gross Development Value (LTGDV):
This is based on the overall estimated end value of your development on the open market. Let’s say you’re building a block of flats that will be worth £5 million, a lender may provide 65% - so you’d receive £3.25 million -
Your Tack Record in Construction:
In property development, your reputation precedes you. Have you had successful developments in the past? If not, you’ll probably have a harder time getting funding or be subject to higher rates. -
Your Credit Rating:
Like all loans, your credit score will come into play. It indicates your ability to repay the loan on time - based on your previous credit history. -
Deposit Size:
You’ll need to front a chunk of the money for the build. Deposits are usually at least 20% of the site’s value, and likely more.
Real-World Example of Residential Development Finance
Let’s say you’ve found a plot of land worth £750,000, and you’re looking to build 6 four-bedroom houses:
- The construction cost is £1.2 million (excluding fees and interest).
- The estimated value of each house, once built, is £385,000
- Total Gross Development Value (GDV) of 6 x £385,000 = £2.31 million.
Lenders typically offer up to 70% of land cost and up to 90% of construction cost, so you’re looking at:
- Land cost: £750,000 — You can borrow 70% = £525,000
- Build cost: £1.2 million — You can borrow 90% = £1.08 million
So your total loan pool will be £1.605 million.
Stage 1: Land Purchase
Your lender can release £525,000 toward the purchase of the land, so you’ll have to cover £225,000 from your own funds to complete the land purchase.
Stage 2: Construction Drawdowns
Once the land is secured, your lender will release the remaining funds in stages as the build progresses. You’ll cover the upfront costs, and then the lender will follow with further drawdowns as you hit key project milestones.
Stage 3: Repayment & Profit
Once the 6 houses are built and sold, you’ll pay back the loan of £1.605 million plus interest. Since this isn’t a joint venture, you get to keep all the profits from the sale of the houses, which would be around £700,000 (minus fees).
What Happens if a Lender Doesn’t Offer Me Enough?
If your chosen lender won’t loan you as much as you need, you could consider mezzanine finance. Mezzanine finance provides you with top-up funding needed to meet the required development costs. It is a short to medium term loan, made to bridge a funding gap and to get a development moving.
For example, a lender may only be prepared to provide 70% of the required funds for your property development. You are able to contribute 10%, leaving a 20% shortfall. Mezzanine finance can provide that remaining 20% as a loan that charges a rate of interest and potentially involves an equity share in the project.
Mezzanine finance appeals to those who want to retain control while lowering their own capital investment.
How to Repay Development Finance
At Funding Guru, we expect borrowers to have a clear plan of how they will repay the loan. Your options are:
- Sell the finished property or properties once completed
- Apply for a longer-term commercial mortgage
- Refinance through a development exit bridging loan
Most providers of development finance roll up the interest charges, so borrowers pay the interest when they repay the loan. This assists with cash flow as typically there will be no incoming cash until the project is sold at the end once the development is complete.
How to Repay Development Finance
Development finance can be a powerful tool for funding ambitious property projects, offering flexibility and the potential for strong returns. However, like any funding solution, it comes with risks and complexities that developers need to carefully consider.
Here’s a breakdown of the key advantages and potential drawbacks to help you decide if it’s the right fit for your next project.
| Pros of Development Finance | Cons of Development Finance |
You can take on a large project Property development is expensive. Borrowing money means you can finance a big project without having to fund it all from your firm’s own cash. | Complex Process Development finance is much more complex and specialised than standard mortgages, meaning you will face additional paperwork and higher fees and interest rates. |
You can work on multiple projects at once You do not have to wait for an existing project to finish before starting a new one. A bridging loan could be used to fund another project while waiting for an existing property sale to complete. | Expect Delays There are likely to be delays in the construction and building work, which could put pressure on timescales and your ability to repay the loan by its deadline. |
You can leverage your capital and achieve higher returns By building a property or development that is in high demand, you would get a decent return on your capital to put towards other projects. | Your Assets are at Risk As with any loan, you will be required to offer the property or loan as collateral. If you can’t meet the loan repayment terms your assets are at risk. |
What Are the Costs of Development Finance?
Whenever you’re applying for any type of finance, you need to consider the costs as they can impact the overall budget and profitability of the project. We’ll break them down:
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Interest :
As with any loan, you’ll pay interest. Interest is typically charged monthly and is only payable on the funds that are actually drawn down from the loan, not the full loan amount. Simple. -
Lender Arrangement Fee:
Lenders often charge a fee to cover their costs of setting up the loan. Think underwriting, credit checks, and all the headache-inducing admin that you’ll avoid. -
Professional Fees:
Depending on the scale of the project, costs for professionals like solicitors, architects, and project managers can add up. These fees may often be included in the development finance loan. -
Valuation Fees:
To estimate the Gross Development Value (GDV) of a project, lenders usually require an independent third-party valuation. This is a standard cost to assess the project’s potential. -
Monitoring Fees:
Lenders may charge monitoring fees for tracking the progress of the development to ensure the project is on schedule and cash is being spent properly. -
Exit Fees:
These fees, which vary between lenders, are typically charged at the end of the loan term and are calculated as a percentage of the total repayable loan sum. -
Broker Fees:
If a broker is involved in arranging the development finance, a fee will likely apply for their services. -
Non-Utilisation Fees:
If a lender reserves funds for a project but the funds are not used immediately, they may charge a non-utilisation fee to compensate for them keeping the capital unavailable for other lending opportunities.
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Development Finance Frequently Asked Questions
What is the deposit for development finance?
You’re gonna need to put some skin in the game for any property development project. Expect to front at least 20% of the site’s value – and in most cases, it’ll be more. Lenders want to see you’re invested before they step in.
What is the interest rate for development finance?
The interest rate on your development finance loan will be determined based on the length of time you need the cash for, your credit history and the amount of capital you put down. At Funding Guru, we’re transparent on the interest rates for your loan, so you can make financial decisions with confidence.
Ready to Fund Your Next Property Project with Development Finance?
