At Howe Commercial Finance, we specialise in helping businesses navigate the complexities of development finance, offering tailored solutions that work for both seasoned professionals and first-time developers. This case study highlights how we supported a newly established property development business in securing 100% financing for a project, despite having no initial deposit and prior rejections from other brokers and lenders.
Background: The Client’s Financing Challenge
We recently met with a newly formed development finance business during an in-person networking event. The client was a first-time property developer, eager to bring their vision to life but faced several significant challenges:
- No available capital for a deposit
- Previous rejections from other lenders and brokers
Despite these obstacles, the client was keen to explore all options. With our extensive knowledge of development finance for first-time developers, we were confident we could find a solution to help them move forward.
Project Overview
The client’s project involved acquiring land with planning permission to build three residential units. Below are the key project details:
- Land purchase cost: £600,000 for two plots
- Estimated build cost: £500,000
- Total finance required: £1,100,000 to cover both the land and construction
- Projected completion value: £2,000,000
- Exit strategy: Sell one property and rent another
The Development Finance Solution
Step 1: Renegotiating the Purchase Price
Our first step was to negotiate with the vendor to reduce the cost of the land. We successfully secured a revised purchase price of £500,000, which lowered the total finance required and improved the project’s profitability.
Step 2: Structuring Deferred Consideration
With no private investors and no assets to leverage, we negotiated a deferred consideration structure with the vendor. This agreement allowed the client to secure the land without needing a large deposit upfront:
- £250,000 paid upfront, funded by the lender
- £250,000 paid upon project completion, either through the sale of a property or refinancing
This arrangement provided the client with immediate access to the land without the typical requirement for a significant deposit, a major challenge often faced by first-time developers.
Step 3: Securing 100% Development Finance
We then worked to secure development finance for the entire project, including the land acquisition and build costs. The lender approved a net loan of £750,000, which was structured as follows:
- £250,000 released initially to purchase the land
- The remaining balance released in staged payments to cover the build costs as the project progressed
This 100% financing solution allowed the client to proceed without any upfront capital, demonstrating that even first-time developers can access comprehensive development finance when the deal is structured properly.
Step 4: Addressing Loan Servicing Costs
One of the client’s concerns was managing the cash flow during the development. We negotiated terms with the lender that allowed all fees, interest, and setup costs to be rolled into the loan and paid off upon project completion. This meant no ongoing repayments were required during the build, providing the client with breathing room until the project reached its exit phase.
Exit Strategy
The exit strategy involved selling one of the newly built houses and renting out another. This approach ensured:
- Sufficient funds to settle the remaining £250,000 owed to the vendor
- A profit that could be reinvested into future development projects
The Outcome
We are pleased to have secured a successful outcome for this client by structuring a creative development finance solution. The legal process is now in motion, and the client is on track to complete the project within the planned 12-month timeline. This case is a testament to the fact that even first-time developers can secure comprehensive finance with the right approach and guidance.
Key Takeaways for First-Time Developers
This case offers several important lessons for those seeking development finance for first-time developers:
- Creative financing solutions can help overcome the initial capital hurdles often faced by new developers.
- Vendor cooperation and a willingness to structure deferred consideration can be key in securing land without a large deposit.
- 100% development finance is achievable, even for first-time developers, when the project is well-structured and backed by a sound exit strategy.
- Rolling fees and interest into the loan can reduce the financial burden during the build phase.
At Howe Commercial Finance, we go beyond traditional lending options to find solutions that work for every client, regardless of their experience in property development.
Looking for Development Finance?
Whether you’re an experienced developer or new to the industry, our team at Howe Commercial Finance can help you explore your options and secure the development finance you need to get your projects off the ground.
Contact us today to learn more about how we can assist with your next development project.
Get in Touch
Visit Howe Commercial Finance or email us at [email address] to schedule a consultation and discuss your development finance needs.
