Development Exit Finance, or Sales Period Funding, can help to lower your borrowing costs by replacing your original development loan with a cheaper alternative.
This is normally available at, or around, practical completion of the project. However, we have also successfully secured terms for developers who are not quite at that stage.
What is Development Exit Finance?
Once your development project is nearing practical completion, or is wind and watertight, you have the opportunity to refinance your original loan with developer exit finance.
By refinancing you can lower your borrowing costs by securing a lower interest rate loan and you may also have access to further funds by borrowing against the current valuation. Once your project is weather proof or largely completed, a major part of the risk taken by the initial lender will have reduced.
Development Exit Finance is a form of bridging loan and so will be for a short term basis only. The term should be structured so that it meets with your expectations for exiting the site via sale or longer term refinance.
To aid cashflow, the developer exit loan can be set up with interest roll up, so that all payments are made at the end of the term.
Moving over to exit finance is a good way of reducing your costs, improving your cashflow and benefiting from additional time to finish or sell your development units.
When would you need Development Exit Finance?
You are in a stronger position to negotiate your exit finance once your development is near practical completion or when certain key milestones have been reached that allow the lender to value your development with confidence. Don’t worry if all your units are not yet sold or occupied, there are lenders that will take into account the sales projections to come.
You can use development exit finance to repay any current development loans on a site that has recently been completed or which is mostly completed.
This provides a few benefits to the developer:
If the initial development finance is near the end of its term there’s quite a lot of pressure on the developer to get units sold to make the repayment. Exit finance grants you a new time period in which you can sell the units for the best price with less time pressure to deal with.
Exit finance can allow you to pull out some equity so that you can quickly progress to the next project.
Exit finance will be cheaper than your original finance so there’s a significant saving in interest costs. For a lender the level of risk decreases as the project nears completion, so for sales period finance an incoming lender can afford to be more competitive.
Exit Finance setup fees
The primary cost will be the interest charged on the amount borrowed. But there are also number of fees and costs for setting up the new facility.
The main ones are:
LENDER ARRANGEMENT FEE
Most development finance lenders will charge 1-2% of the loan amount as a setup fee. In most cases this can be added to the amount borrowed and then paid on full redemption of the loan. This will increase the overall cost of your interest but helps with cashflow.
The lender will want a surveyor to visit the site to understand the current position and to provide a valuation as the site is now plus one when fully finished. The cost of the valuation will be confirmed on application and is needed upfront.
As this will be a secured loan facility, a solicitor will be needed to register the lender’s interest etc. Often you will be required to pay for the lenders costs as well as your own.
Our brokers do charge a fee for researching and arranging development exit finance. They will confirm this fee to you prior to any application.
Where possible we will arrange finance without a lenders exit fee. This will allow you to repay the loan early.
Secured lending always relies on the loan to value (LTV) factor. Exit finance is no different and so the lower the LTV the better rates we can achieve for you. The LTV and your exit strategy will determine the rate of interest charged.
Where the construction is not quite as advanced but extra funds and/or time are needed then Finish and Exit Development Finance can prove invaluable. This new loan facility will allow developers to refinance their existing development finance, continue with the development build whilst allowing extra time to finish and sell any remaining units without the stress of default penalty interest.
Read more about Finish and Exit Development Finance.
Who can apply for Development Exit Finance?
The lenders that offer exit finance will accept applications from all types of borrowers including:
- Limited Companies
- Special Purpose Vehicle Co’s (SPV)
It is also possible to obtain developer exit finance even if you are a first time developer.
We understand that not everyone’s credit score is perfect. That’s why we can look at all credit profiles and work with you to help you get the finance you need for your development project. So please give us a call even if you have some poor credit – we may be able to help you!
What information is needed for the application?
Our brokers will let you know what information is needed for the finance application once they have discussed your project with you. We will ask for details of your development, sales forecasts and up to date accounts which we can use as a basis to present a strong case for development exit finance.
Typically the information below will be needed:
- Full details of the security
- Details of the project owner
- Details of the project borrower
- Marketing plan
- Details of reservations and sales etc
- Planning permission
- Current development loan information
- Schedule of remaining works
The incoming lender will want to value the site. If it is only part completed then they will use the Gross Development Value less the cost of any remaining works and profit.
- First charge lending
- 75% LTV
- Poor credit considered
- Corporate or individuals
- Flexible underwriting
- Rolled up interest
- Residential properties
- Houses in Multiple Occupation (HMO)
- Mixed-commercial properties
How are unit sales dealt with?
Once you start selling units the development exit lender will want you to begin reducing the loan balance. Unlike development finance, most exit finance lenders will be comfortable with you retaining an agreed proportion of the sales proceeds to assist with your cashflow.
Why use a broker?
Our expert brokers are available to help you secure a great deal for your development exit finance. Years of experience and expertise allows us to efficiently locate the best solutions while allowing you to finish a successful development.
We save you time and money.contact us
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