in major cities, there is a large demand for office space.
Large developers usually have access to investor funding for construction work, but small to medium developers rely on bridging finance and other loans.
Applying for a bridging loan
To start construction, a developer needs to purchase materials and have enough funds to pay the salaries of the workers. If a developer is building new property and owns the land, they can use the value of the land to secure a bridging loan for construction work. If renovating property, the value of the property can be used as loan security.
Loans are available for all types of property, residential or commercial. A bridging loan can also be arranged for purchasing land for new developments. Bridging loans are useful for conversion work, converting commercial buildings to residential use and vice versa.
A bridging finance broker finds a suitable lender and will negotiate a loan for the developer. They can also make sure that the loan application process proceeds smoothly.
Paying back the loan
In theory, a borrower can apply for a bridging loan for any amount up to £1bn, but obviously, the loan will need to be paid back with interest. Before providing a loan, the lender needs the borrower to have a clear strategy of when and how the loan will be repaid. The lender needs to be convinced that a healthy profit will be achieved by the project.
After the property has been built, the developer could sell the property and then repay the bridging loan. If the developer is building several homes, the value of the home completed with a bridging loan can be used to secure long-term finance to construct other homes. In this way, finance can be secured for further building without having to wait for the first home to be sold.
Many older properties are not eligible for a mortgage until they have been upgraded. After a renovation project has been completed, and the building is eligible for more long-term finance, a mortgage can be applied for and used to repay the bridging loan.
The developer’s contribution
A bridging loan will not usually provide all the funds for construction. Loans of between 60% and 75% are normal, with the borrower having to provide the rest of the money. If the developer owns other property, they could be used as additional security for a higher value loan.
If you are a developer that needs funding, get started by talking to Ascot Bridging. Our experts will discuss all your borrowing options. Once they have a full picture of your development project, they will approach one or more lenders to provide loans.
Ascot Bridging can arrange both short-term bridging finance and more long-term loans for complete development financing.