Trying to finance your business can be tough, especially if you don’t have the funds readily available. When it comes to managing your personal financial emergencies, you might look into payday loans or even a short term loan. But when running a business, these methods might not be an option or you might need a higher amount of finance than they can provide. If you’re looking to grow your business through refurbishment or renovating a building to use as your central hub, you may want to look into development finance. Keep reading to find out more about how your business can benefit from it.
What Is Development Finance?
Development finance is available for businesses to apply for as it provides them with the means to finance a project such as buying or renovating land or buildings to make them fit for commercial use. An agreed term will be put in place so that you make a certain number of payments over a period of time for a fixed amount.
How Does It Work?
Firstly, you’ll need to source the lender that’s right for you. Take some time to research who can offer you the best finance and affordable repayment terms. You’ll then need to complete your application form and the lender will then assess your request. The lender will take different factors into consideration. For example, the lender will take the development’s finished value into account as well as your affordability. They’ll also check your credit score and business history to ensure that you’re not too risky to lend to. If your application is approved, you won’t receive the finance in the form of a lump sum. Instead, it will be released incrementally over the time period of the project. This means the lender will often require updates on the development project to ensure the finance is being used correctly and allows them to decide when it’s best to provide more of the funding.
What Do I Need For Development Finance?
When you request development finance, you’re normally be requesting a large amount of money. This means the lender has to be very cautious when approving applications. To ensure that they’re lending to a borrower who can afford the repayment and will make good use of the finance, they’ll require lots of different documents to support your application. Each lender is different, but most will need to see the current value, the estimated value once development is completed, planning permission, and a timescale of your project. Make sure you have all of the necessary information to hand when applying so you can be sure you’re giving the most accurate answers you can.
Benefits Of Development Finance
Using development finance will allow you to have access to the funds you need quickly if your application is approved. Generally, development finance is only borrowed over a short term too, so you aren’t stuck paying it off for years to come. This means you can keep your overall costs down in the long run as once it’s paid off a lot quicker. A lot of long term loans will charge more interest as they’re paid back over a longer period. Opting for development finance means that you won’t be paying off much more than your total requested amount as you’ll be charged interest for a shorter period of time. You also don’t have to pay any upfront fees when accessing the development finance funds.
Opting for business finance when you’re looking to develop a building also means you can be more ambitious with your plans as you’re not restricted by your own personal finances. You can also use this type of finance for lots of different development projects which means you aren’t limited to only developing existing buildings. You can even use it to build from scratch and really personalise your space.
How Much Can I Borrow?
Depending on the size of the project, you can request anything from a few thousand to up into the millions. However, just because this is an option, it doesn’t mean that you’ll receive it. Lenders will look at the project as a whole and your affordability as a business to determine whether or not such a high amount is actually needed.
How Do I Repay It?
Most lenders will offer the development finance as an agreed amount with interest added to the whole lot, rather than on a month-by-month basis. Then once you’ve completed the project, you’ll pay back the finance amount with the added interest in one go. This method is useful if your business is planning to sell the development once it’s completed. If you’re not looking to sell it and don’t want to pay it back in one go, other lenders might offer the standard monthly repayment terms like other loan providers, but this isn’t a guarantee.
There aren’t any particular negative effects of using development finance, but some people might not want to fill out the extensive application forms that are required. Some lenders will also charge exit fees that are to be paid at the end of the agreed loan term and some can charge administration fees at the beginning. Some lenders may not be willing to finance development in certain locations either, so it’s always best to check before applying. These don’t necessarily make the finance not worth applying for, but it’s things that you’ll want to take into consideration.
When you want to begin working on your business development, you will probably need the funds fast so trying to save up enough to barely scrape by might not cut it in the long run. Because you also need to keep your lender in the loop on how the development is progressing, it will allow you to ensure you’re keeping on track and are working towards your end goal. Having the option to not pay it off monthly either can give your business accounts a break and won’t add any extra expenditures. Accessing development finance can be beneficial for your business and can allow you to bring your dream project to life without breaking the bank.