How Property Development Finance Can Help Small Businesses

How Property Development Finance Can Help Small Businesses

Small businesses are always carrying and undertaking new projects. But they sometimes find themselves running out of cash, or resources. At this point they require an immediate boost to ensure that the project is completed within the set deadlines. Services of property finance may come in handy at this point. Although high street banks may provide loans to this effect, more often than not these banks will only agree to a 50/50 deal i.e 50% acquisition, 50% build costs, raising this to 70/70 deals for developers perceived to be experienced. Whatever the case is at least a 30 per cent deposit is a prerequisite.

Should one desire a 100 % funding, then property development finance could be of great help. Property development finance is a hybridised fund offering both long term as well as short term loans. These loans cover both site acquisition as well as the associated building costs. In most cases payable interest are aggregated on the conclusion of the project at when the property is either sold or financed.

This type of finance can comprise of a blend of elements including equity and debt finance, i.e share capital where one receives shares in ownership and/or dividend payments as per the profit made also referred to as risk capital. Property development can be a blend of the two (equity and debt) in this case it is referred to as mezzanine finance. Mezzanine finance is characterised with higher interest rates and is usually payable within a period of 7 to 10 years. The interesting thing is that all these can be combined with a single primary lending source or sources to form a deal.

Although it is common knowledge that businesses will have to be almost if not double of the interest offered by traditional banks, majority of small businesses would benefit more from support to turn their venture into attractive investible opportunities. As such it is prudent for them to go for property development finance as opposed to the normal bank financing.

When putting together a proposal, it is advisable that the right terms and format are followed to better the chances of getting funded. Each and every figure needs to be realistic with up to 10% tolerance to give room for a downward trend in this market. In addition factoring in of a 5 to 25% contingency cost to deal with escalation in costs would give a definite advantage. Businesses are also advised to have the proposal confirmed by an independent surveyor. This makes a lot of difference in having the proposal go through.

Having said that it is important that any upcoming business make use of the loans when need be. It should be understood that although most small businesses need resources to take off and grow, very few if any business have the required securities to help them acquire a traditional bank loan. Property development finance may be the ultimate solution. All small and medium businesses need to take advantages offered by property development finances to spur them to the next level.

Be the first to comment

Leave a Reply

Your email address will not be published.