News

Development Finance – Case Study

Overview

Clients approached Orchard Business Finance on a Saturday morning informing us that they required a bridging loan or development finance to purchase a derelict residential property at auction the following Tuesday. This was no ordinary property, it had an interesting history and was being sold under the Proceeds of Crime Act 2002.

The guide price was £480,000 and the clients, due to time scales hadn’t conducted any of the due diligence that we would recommend when attending an auction. Including obtaining an independent valuation report; completion of structural surveys; legal searches; obtaining refurbishment/development costings; speaking with an architect; speaking with local estate agents to obtain comparable selling prices.

As a result there where lot’s of unknowns with this property and to make the situation more complicated the clients also required Planning Permission for one of their potential development schemes.

Action

We needed to produce a professional lending proposal that would be acceptable to potential lenders. This proposal need to include…

Financial Information

  • Build Costs
  • Professional Fees
  • Contingencies
  • Financial Appraisal
  • Cash Flows
  • Client Funds Available

Client Backgrounds

  • CV
  • Examples of Previous Developments
  • Credit History
  • Asset & Liability Statement (personal & business)
  • Details of Professional Team (solicitors, accountant, QS, architect, construction company)

Purchase Property 

  • History
  • Overview of Development
  • Structural Concerns/Issues
  • Planning Permission – What is Allowed

Funding Requirements

  • Funding Required for Purchase
  • Funding Required for Development Expenses
  • Exit Strategy

All this information was collated over the weekend and signed off by clients for presentation to lenders on the Monday morning.

Due to covid-19, remote working and current economic climate we approached an number of lenders initially by phone and then followed up with the lending proposal. It was explained that a quick yes or no funding decision was required along with level of funding that would be made available if the lender was happy to support the deal.

Outcome

As a result of the well presented lending proposal and credibility of the clients five lenders agreed to fund the purchase of the property. This allowed us to present the clients with a number of funding options, this helped them make an informed decision on how to proceed at auction.

The clients were able to attend the auction knowing the upper limit that they could bid for the property along with the financial implications of bidding over this limit. Sadly the clients were outbid by £5,000 as they had set an upper limit of £500,000.

On this occasion the client couldn’t proceed but I know that we have provided these clients with the highest levels of service and advice. This will ultimately result in them asking ourselves to help with any future development finance requirements.

Contact

If you are a property developer or prospective developer and would appreciate professional guidance and assistance in raising funds contact Orchard Business Finance on 01257 543013.

 

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