A core part of the development finance process is securing the funds. Understanding the required documentation is key for a successful finance application, regardless of whether you are a seasoned developer or starting your first project. In this article, we’ll look at the important paperwork required when applying for financing for real estate development. You may speed up the application process and improve your chances of obtaining the required money by becoming familiar with these requirements.
Table of Contents
1. Business Plan
When requesting financing for real estate development, a thorough business strategy is needed. The goals, schedule, budget, and market analysis of your project are all described in this document. It exhibits your knowledge of the project’s feasibility, development process, and possible profitability. Your expertise, performance history, and capacity to oversee the development are highlighted in a well-written business plan.
Planning Permission Details and Drawings:
Include the planning details or offer a link to the appropriate page on the planning portal for the drawings and details of the planning permission. This enables the lender to evaluate the quoted expenses and the project’s overall scope. The drawings offer a depiction of the final plan in visual form and aid in confirming the project’s viability.
2. Evaluation of Development
The financial viability of the project is thoroughly examined in a development appraisal. Cost estimates, revenue predictions, and cash flow projections are all part of it. This document is examined by lenders to assess the project’s profitability and establish the terms and size of the loan. For a development evaluation to be convincing, accurate cost estimates, reasonable profit forecasts, and a complete knowledge of the market conditions are necessary.
Create a CV that Highlights your Expertise and Experience:
Create a CV that highlights your experience and track record. This is especially important for lenders who value credibility and want assurance that you can handle the project successfully. Even if you are a relatively inexperienced developer, provide details of your experience in other relevant areas to demonstrate your capabilities.
3. Planning and Building Regulations
Obtaining planning permission is a crucial step in property development. Lenders require evidence that the project has obtained the necessary planning approvals and complies with building regulations. Documentation such as planning consent, building regulation compliance certificates, and structural engineer reports are essential to showcase the project’s legal compliance. Providing these documents instills confidence in lenders that the development meets all necessary requirements and reduces risks associated with non-compliance issues.
Schedule of Works:
Break down the schedule of works by stage to provide a clear plan for the project. Combining this information with the plans and cost breakdown allows for easier agreement on stage payments.
Planning Restrictions and S.106 or CIL Payments:
Provide information about any planning restrictions that may affect the development. Additionally, include details of any Section 106 agreements or Community Infrastructure Levy (CIL) payments required. Lenders consider these factors as they can impact the profitability of the project.
Proposed Exit Strategy:
Present a well-defined exit strategy that outlines how you plan to either let or sell the property upon completion. Lenders want assurance that you have a viable plan to repay the loan. Consider factors such as market demand and estimated time frames for selling the property.
4. Legal Documentation
Various legal documents are required when securing property development finance. These include title deeds, lease agreements, and contracts with contractors, architects, and consultants. Title deeds establish your ownership of the property and provide lenders with collateral security. Lease agreements provide details of existing tenancies, if applicable, and any restrictions that may impact the project. Comprehensive contracts with professionals involved in the development demonstrate a structured and well-managed approach.
Team Details (Architects, Contractors, etc.):
Provide information about the professionals and team members involved in the project, including architects, contractors, and other key personnel. Lenders consider the reputation and experience of the team when assessing the application.
Proposed Gross Development Value (GDV):
Provide the proposed gross development value, which should be at least 20% higher than the total project costs. Back up the GDV with the opinions of two or more local agents and, if available, comparable evidence to support the valuation.
Proof of ID, Residence, and Deposit:
Ensure you provide proof of identification, residence, and the deposit amount. Lenders require this information to comply with anti-money laundering regulations. Submitting these documents upfront or as early as possible avoids delays in the application process.
5. Financial Statements
Lenders typically request financial statements, such as balance sheets, profit and loss statements, and cash flow forecasts. These documents demonstrate your financial position, including existing assets, liabilities, and income sources. Financial statements help lenders assess your ability to manage loan repayments and provide assurance regarding the project’s financial viability.
Asset, Liability, Income, and Expenditure Summary:
Include an asset, liability, income, and expenditure (ALIE) summary. Lenders require this to evaluate your financial position and assess your ability to support the project during the build phase. The ALIE summary also helps determine your capacity to provide a personal guarantee, especially for applications made through a corporate structure.
Full Breakdown of Costs:
A detailed breakdown of costs is crucial for lenders to assess the financial viability of the project. While headline figures may be initially accepted, providing a comprehensive breakdown allows lenders to scrutinize the figures more effectively. It also enables them to evaluate the drawdown schedules for financing.
6. Insurance Documentation
Having appropriate insurance coverage is essential when securing development finance. Lenders require evidence of comprehensive insurance policies, including construction all-risk insurance, public liability insurance, and employer’s liability insurance. These policies protect against unforeseen events, such as accidents, damage, or legal claims, mitigating potential risks for both the developer and the lender.
Securing property development finance requires thorough preparation and the provision of essential documentation. From a comprehensive business plan to legal documentation, financial statements, and insurance coverage, each document plays a vital role in demonstrating project feasibility, compliance, and financial viability. By ensuring that all required documentation is complete, accurate, and well-presented, developers can enhance their funding applications and increase the likelihood of securing the necessary finance for their property development projects.