Finish and exit development finance allows developers who are nearing the end of residential development projects to refinance.
This can give additional time to extend the term of their development funding facility, or provide more time for sales to allow you to hold out for a better price for your completed properties.
What we cover in this article:
- What Is Finish And Exit Development Finance?
- How Does Finish And Exit Development Finance Work?
- Who Can Borrow using this Finance?
- When Do You Use Finish And Exit Finance?
- What are the advantages?
- What are the disadvantages?
- Is a it a good idea?
- What are the key considerations?
- What are the alternatives?
- Exit Development Funding Frequently Asked Questions
What Is Finish And Exit Development Finance?
Finish and Exit Development Finance, often simply referred to as Finish and Exit, is a specialized type of finance designed to support property developers during the final stages of their development project.
It’s the financial safety net that catches you when you’re on the home stretch but need that extra push to cross the finish line.
This type of development finance is typically used to refinance the remaining debt from a development loan, providing the necessary funds to complete the final touches on a project.
It’s the bridge that connects the gap between the completion of construction and the sales period, hence why it’s often associated with exit bridging loans.
The purpose of Exit Finance is twofold. Firstly, it provides developers with the financial breathing room to finish off their projects to a high standard without rushing or cutting corners.
Secondly, it allows developers to exit their original development finance agreement, which often has higher interest rates, and transition into a more affordable and flexible financial arrangement.
How Does Finish And Exit Development Finance Work?
The mechanics of Finish and Exit Development Financing are relatively straightforward, but they do require a solid understanding of the property development process.
Once a development project nears practical completion, a developer can apply for a Finish and Exit loan. This loan is used to refinance the existing development finance, freeing up additional funds to complete the project and cover any associated costs during the sales period.
The loan amount is usually based on the Gross Development Value (GDV) of the project, typically up to 70%.
The term of the loan can vary, but it’s usually between 12 to 18 months, providing ample time for the developer to sell the property or properties and repay the loan.
It’s important to note that Finish and Exit Development Funding is a type of bridging loan. This means it’s designed to be a short-term solution, bridging the gap between the completion of the project and the sale of the property.
Who Can Borrow using this Finance?
Finish and Exit Development Finance is a versatile financial tool that can be utilised by a wide range of borrowers.
Whether you’re a seasoned property developer with a portfolio of completed projects or a budding investor taking on your first development, this type of finance could be a viable option for you.
Typically, borrowers can include individual developers, partnerships, limited companies, and Special Purpose Vehicles (SPVs). The key eligibility criterion is that the borrower must have a development project that is nearing completion – usually when it’s wind and watertight.
It’s also worth noting that while Finish and Exit Property Development Finance is primarily used in residential property development, it can also be used in commercial property development.
This flexibility makes it a valuable financial tool for a broad spectrum of developers and investors.
In the world of property development, timing is everything. Finish and Exit Development Finance provides the financial support developers need to ensure their projects cross the finish line, ready for the grand unveiling in the property market.
Whether you’re based in the heart of Scotland or the hustle and bustle of the UK’s commercial cities, this type of finance could be the key to unlocking your project’s full potential.
When Do You Use Finish And Exit Finance?
The beauty of Finish and Exit Development Loans lies in its versatility. It’s like a Swiss Army knife in the world of property finance, ready to be deployed when the situation calls for it.
But when exactly might you need to pull it out of your financial toolkit?
One of the most common scenarios is when a development project is nearing completion, but the developer needs additional funds to cross the finish line.
This could be due to unexpected costs, delays, or simply because the original development finance is running out.
Another scenario is when a developer wants to exit their existing development finance agreement early.
This could be because the terms of the original finance are no longer favourable, or because the developer has found a more attractive finance option. In this case, a Finish and Exit loan can be used to refinance the existing loan, providing a smooth exit strategy.
Finally, Finish and Exit Finance can also be used as a safety net during the sales period. Selling properties can sometimes take longer than expected, and during this time, developers still have costs to cover.
A Finish and Exit loan can provide the necessary funds to keep everything running smoothly until the properties are sold.
What are the advantages?
Just like a well-constructed property, the advantages of this type Development Finance are built on a solid foundation. Here are some of the key benefits:
- Flexibility: Finish and Exit loans offer a high degree of flexibility, allowing developers to refinance their existing development finance and free up funds for the final stages of their project.
- Cost-Effective: By refinancing the existing development finance, developers can often secure more favourable terms and lower interest rates, making it a cost-effective solution.
- Cash Flow Management: Finish and Exit loans can provide a vital cash flow boost during the sales period, helping to cover ongoing costs and prevent cash flow issues.
- Security: With a Finish and Exit loan in place, developers can have peace of mind knowing that they have the funds to complete their project to a high standard and cover costs during the sales period.
What are the disadvantages?
While Finish and Exit Development Financing offers numerous benefits, it’s important to also consider the potential drawbacks:
- Short-Term Solution: Finish and Exit loans are designed to be a short-term solution. If properties take longer to sell than expected, developers may need to seek additional finance.
- Dependent on Sales: The repayment of the loan is typically dependent on the sale of the properties. If the properties don’t sell for the expected price, or within the expected timeframe, this could impact the developer’s ability to repay the loan.
- Costs and Fees: As with any type of finance, there are costs and fees associated with Finish and Exit loans. These should be factored into the overall project budget.
Is a it a good idea?
Whether Finish and Exit Property Development Finance is a good idea depends largely on the individual circumstances of the developer and the project.
For many developers, it’s a valuable financial tool that can provide the necessary funds to complete a project and manage cash flow during the sales period.
However, it’s not a one-size-fits-all solution. Each development project is unique, with its own set of challenges and opportunities.
Therefore, it’s important to consider all the available finance options and choose the one that best fits your needs and circumstances.
For example, if you’re a property developer in Scotland working on a commercial development, and you’re nearing the end of your project but need additional funds to complete it, a Finish and Exit loan could be a great option.
On the other hand, if you’re a property developer in the UK working on a residential development and you have sufficient funds to complete your project and cover costs during the sales period, a Finish and Exit loan might not be necessary. In this case it would simply come down to how much money you can save by switching and whether a longer sales period would be desirable.
What are the key considerations?
When it comes to this type of property development finance, it’s not a decision to be taken lightly. Like a well-planned property development project, it requires careful consideration and planning. Here are some key factors to consider:
- Project Status: Finish and Exit Finance is typically used when a project is nearing completion. You’ll need to assess the status of your project and determine if this type of finance is the right fit.
- Financial Needs: Consider your financial needs. How much additional funding do you need to complete your project? Do you need a financial buffer during the sales period?
- Repayment Strategy: As with any loan, you’ll need a solid repayment strategy. This is typically dependent on the sale of the properties, so consider the property market conditions and your sales strategy.
- Costs and Fees: Be aware of the costs and fees associated with Finish and Exit loans. These should be factored into your project budget.
- Alternatives: Consider the alternatives. Are there other types of finance that might be more suitable for your needs and circumstances?
What are the alternatives?
While it can be a valuable tool for property developers, it’s not the only option. There are several alternatives that might be more suitable depending on your needs and circumstances.
- Development Finance: This is a more traditional form of finance for property development. It’s typically used to cover the costs of construction and development, but it usually requires the developer to have a significant amount of capital to contribute.
- Bridging Loans: These are short-term loans designed to bridge the gap between the need for immediate cash and the main finance becoming available. They can be used in a variety of scenarios, including property development.
- Commercial Mortgages: If your project involves commercial property, a commercial mortgage could be an option. These are similar to residential mortgages but are designed for commercial properties.
- Refinancing: If you already have a development finance agreement in place, you might consider refinancing to a different lender or loan product that offers more favourable terms.
How Much Can I Borrow?
The amount you can borrow with exit finance can vary depending on several factors. These include the Gross Development Value (GDV) of your project, the projected sales value of the properties, and the lender’s assessment of your project and financial situation.
Typically, you can borrow up to 70% of the GDV of your project. However, this can vary between lenders, so it’s always a good idea to speak to a broker or financial advisor to understand your borrowing potential.
What Are The Costs?
Like any type of finance, exit finance comes with its own set of costs. These can include interest rates, arrangement fees, exit fees, and valuation fees, among others.
Interest rates can vary depending on the lender and your financial situation, but they’re typically charged on a monthly basis. Arrangement fees are usually a percentage of the loan amount and are paid at the start of the loan. Exit fees, if applicable, are paid when the loan is repaid.
It’s important to factor in these costs when considering Finish and Exit Development Finance and to ensure they’re included in your project budget.
How Long Does It Take To Arrange?
The timeline for arranging Finish and Exit Development Finance can vary depending on the lender and the complexity of your project. However, it’s typically a quicker process than arranging traditional development finance.
Once you’ve submitted your application and provided all the necessary information, a lender can usually make a decision within a few days. From there, it can take a few weeks to arrange the valuation, legal work, and other necessary steps before the funds are released.
However, this is a general guideline and the actual timeline can vary. It’s always a good idea to start the process as early as possible to avoid any potential delays.
Exit Development Funding Frequently Asked Questions
Here are a selection of the key questions that we’re often asked.
Can it be used for a commercial property development project?
Yes, while Finish and Exit Property Development Loans are often used in residential property development, it can also be a valuable tool in commercial property development.
How does the sales period impact the repayment of a Finish and Exit loan?
The sales period is crucial for the repayment of a Finish and Exit loan. The loan is typically repaid from the proceeds of the property sales. If the properties sell quickly and at the expected price, it can facilitate smooth repayment.
However, if the sales period is extended or the properties sell for less than anticipated, it could impact the repayment schedule.
What happens if the properties don’t sell within the loan term?
If the properties don’t sell within the loan term, developers may need to seek an extension of the loan or refinance with another loan. This could potentially lead to additional costs.
Can Exit Finance be used in conjunction with other types of finance?
Yes, it’s possible to use exit finance in conjunction with other types of finance. It’s often used to refinance existing development finance prior to exit, but it could also be used alongside other forms of finance depending on the developer’s needs and the specifics of the project.
How do lenders assess my application?
Lenders typically assess applications based on the Gross Development Value (GDV) of the project, the projected sales value of the properties, the status of the project, and the developer’s financial situation. They may also consider other factors such as the developer’s experience and the property market conditions.