Embarking on a development project can be both exciting and rewarding. However, the process often comes with risks and financial challenges. Even experienced property developers can face hurdles, such as unexpected delays or cost increases. These issues can threaten a project’s completion and lead to potential financial losses. Developer exit loans provide a way to address such challenges and secure a project’s success.
As a property developer, you understand that even the best-planned projects can face setbacks. Delays or unforeseen circumstances can make it hard to complete your development on time or repay the original loan. If lenders are unwilling to extend terms, you might struggle to secure the funds needed to finish the project. Developer exit finance offers a practical solution in such situations.
A summary of development exit loan
A development exit loan is a type of bridging finance designed for developers nearing project completion. It replaces existing development finance, lowers finance costs, and provides extra equity for cash flow or future projects.
This loan is often used when developers face unexpected issues, such as cost overruns, delays, or market changes. These challenges can make it difficult to repay the outstanding loan on a completed or nearly completed property. Instead of halting the project or investing further funds, developers can recover part or all of their investment through a development exit loan.
The loan is typically secured against the property under development, with some lenders requiring extra collateral to manage risks. Loan terms are flexible, offering repayment options tailored to the borrower’s needs over shorter or longer periods.
Why are development exit loans used?
Developer exit loans are essential when setbacks arise due to poor contingency planning, unforeseen events, or financial miscalculations. Over the past year, demand for developer exit loans has risen significantly. This increase is largely due to developers exhausting their funds and original lenders being unable to extend loan terms because of funding restrictions.
Many property finance lenders do not offer developer exit finance because it demands diverse and flexible funding options. Lenders typically provide these loans with specialised knowledge of the development sector. Their expertise allows them to assess complex cases and evaluate projects to support their completion.
Which Lenders Provide Development Exit Finance?
Developer exit loans typically become available to property developers once practical completion is achieved. These loans are especially valuable when unexpected challenges arise, such as adverse weather, unexpected costs, or unforeseen complications that disrupt project timelines or budgets. In such cases, repaying existing loans can become difficult.
Development exit loans offer critical support by refinancing existing development finance and providing additional funds. This ensures coverage for unexpected expenses and reduces financial risks associated with unplanned issues.
Is the property considered wind and watertight?
When considering a developer exit loan, a key factor is whether the property is wind and watertight. This ensures the property is resistant to wind and rain, indicating it is at an advanced stage of construction. Obtaining a developer exit loan is typically straightforward and low-risk if the property meets this criterion. These loans are similar to standard bridging loans, with rates and terms available up to 75% loan-to-value. Accurate valuations are possible at this stage as the property is already built.
The process becomes more complex if the property is not wind and watertight, but some lenders may still provide support. These cases often require bespoke underwriting and development expertise within the lender’s funding criteria, making financing a possibility.
A development exit loan is a suitable option if your project is complete, but the units remain unsold, and the initial funding repayment is due. This type of loan provides additional time to sell the units with a flexible, cost-effective, and fast financing structure. The extended time allows you to maximise returns at the end of the project. Development exit loans also offer a manageable, longer-term arrangement with lower borrowing costs, helping you meet your project goals while reducing financial risks.
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