For years, specialist development finance has been the go-to tool of choice for many of the UK’s most established property developers and construction companies. A flexible and effective short-term facility, bridging finance can also be highly cost-effective when procured strategically.
Meanwhile, the popularity of bridging loans has been growing steadily during the same period of time. Bridging finance works in a similar way to development finance, though with several unique points of appeal for certain types of applicants.
Choosing between the two means first considering your requirements, followed by your eligibility; while much of the basic principles of the two funding options are the same, there are important differences to take into account before applying.
Development Finance in Brief
Of the two options, development finance has the potential to be the most cost-effective. A competitive development finance product from a top-rated lender could boast unbeatable borrowing costs and the lowest possible monthly rate of interest.
The facility can be arranged in a matter of days and is designed to be repaid as promptly as possible – typically within 6 to 24 months. There are no upper limits to how much can be borrowed, with loans usually available starting from around £250,000 or more.
Where a project is financed with a specialist development finance product, the funds are released gradually in a series of stages as the project progresses. The lender watches over the project’s progress and issues the next installment when satisfied a specific phase is complete.
In addition, only established developers and construction companies with a provable track record are able to qualify for development finance.
Bridging Finance for Property Developers
A bridging loan works in a similar way to development finance, in that the funds can be accessed within a matter of days and are typically repaid within the same period of time – usually 6 to 24 months.
Bridging finance specialists typically issue loans starting from around £50,000 up to a limit of around £5 million (sometimes more), charged at a highly competitive rate of interest of around 0.5% per month. A promptly repaid bridging loan can therefore represent exceptional value for money e.g. for multifamily bridging loans.
But where bridging finance differs from development finance is in its accessibility and flexibility. No prior knowledge or experience as a developer is necessary to qualify for a bridging loan. There are even specialist facilities available for applicants with poor credit or a history of bankruptcy.
In addition, funds raised by way of bridging finance are released in a single lump sum when the facility is authorised. This provides builders and developers with more initial spending power and greater flexibility when compared to a development finance product released in stages.
Making the Right Choice
Both options have their pros and cons, but it can be much easier to qualify for bridging finance than development finance.
If in doubt, consult with an independent broker to discuss the options available, before submitting your application to your chosen lender.