The last time we looked they were over 200 bridging and development finance lenders in the UK short-term lending sector. The majority of these lenders only offer bridging loans so after you take out all of the bridging lenders, you are left with a core of around 14 or 15 development finance lenders.
Further still, not all of these 15 or so development finance lenders will finance a development from what is known as the ‘ground up’.
This means a property that has been built from scratch, hence the term ground up.
This type of lending is considered for more risky than traditional bridging finance because of the pitfalls and the problems involved. Some of the common issues with development finance in terms of risk are cost overruns, unable to sell the finished properties, unsatisfactory work completed which has or will devalue the property when finished, the borrower or even the lender running out of cash.
That being said, the lenders that do operate in this market tend to be of a higher quality than that you will find with bridging lenders simply because of the experience and the knowledge of the senior members of staff at that particular lender.
The development finance market is dominated by the large players, lenders such as West One Loans, Together and LendInvest, however there have been a number of new entrants to the market who have come on board with a lot of cash and a lot of quality personnel, one of them being Breeze Capital who are starting to make waves.
Can you trust a development finance lender?
That is the big question and it’s not an easy one to answer.
From the borrowers perspective, it is important that you understand where the lenders capital is coming from. The last thing you want as a developer is to start a project and then find out that the lender who is supposedly funding you has run out of cash.
Believe us when we say that this happens a lot more than you might think. If the lender is funded from what is known as the peer-to-peer model, then this is likely to happen more frequently because in the peer-to-peer model, where each loan is funded by many hundreds or even thousands of investors then there is no guarantee that the money will still be there for the borrower or developer, by the time you get to drawdown your payment.