Published by The Finance Place · Updated · General information
Ground-up, conversion or refurbishment?
Define the works, planning position, professional team, contractor, programme and cost plan. A cosmetic refurbishment and a structural conversion expose the lender to different risks. Ground-up development adds land, infrastructure, construction and sales timing. Explain your experience of comparable projects and the relevant team's responsibilities.
The funding budget must cover more than construction
Include acquisition, taxes, legal work, professional and planning fees, build costs, infrastructure, monitoring, sales costs, finance and a contingency. Check which items include VAT and whether recovery timing creates a cash gap. Do not count an expected tax refund as cash already available. Cost-to-complete can rise even after substantial work is finished.
A facility limit is not day-one cash
Development lending commonly releases money in stages as conditions are met. Organise contractor payments, evidence of work and monitoring requirements around the actual drawdown process. If costs must be paid before a draw is released, your own cash has to bridge the gap. A lender may require equity to be spent first or retain amounts until completion.
Inspect a month-by-month drawdown illustration →Understand LTC, LTGDV and interest reserves
Loan-to-cost compares debt with the relevant project cost base. Loan-to-GDV compares debt with the expected completed value. Lenders may include interest reserves and fees in gross exposure and define eligible costs differently. A project can fit one limit and fail the other. Use the same definitions throughout the appraisal before treating either ratio as reassuring.
“I need more money to complete the development”
An unfinished project needs a fresh cost-to-complete and time assessment, not just the original budget minus invoices paid. Reconcile the remaining facility, accrued interest, contractor liabilities, contingency and funds needed for sign-off. Discuss the position with the existing lender before assuming a second lender can step in; security ranking, consent and the value of an unfinished site matter.
Finished units still need a sales or refinance plan
Allow time between practical completion and receipt of sale proceeds. Slower sales can increase interest while reducing pricing flexibility. A development exit facility may refinance completed units during marketing, subject to criteria, fees and a credible exit. It does not remove selling risk or automatically fund unfinished works.
Test whether development exit finance actually improves the position →Test the downside in cash as well as profit
Reduce GDV, add a build overrun and extend the programme. Check both the remaining profit and the extra equity needed to finish. Profit before tax is not the same as cash available during construction. Independent valuation, quantity-surveyor input, legal review and suitable finance advice remain essential to a real project.