SME developers are also typically more reliant on finance than larger housebuilders and achieving the required leverage can often make the difference as to whether a viable project gets out of the ground at all.

In that environment, I think one question matters more than almost any other in development finance: how much of the facility is actually usable?

Too much of the market still focuses on the headline size of a loan rather than the capital that is genuinely working inside the scheme. For SME housebuilders this can be an important distinction.

Every pound of senior debt should be helping to acquire the land, fund the build, pay the professionals and move the project toward exit. When part of the facility is effectively trapped from day one to service interest, the borrower may achieve a larger headline loan size but not have access to more working capital.

A lender quoting a facility that includes rolled-up interest, fees and contingencies may, on paper, look competitive and even generous. However, in practice, the borrower is not receiving the full headline amount as usable project capital as a material portion of the facility is already spoken for.

The benefits of net lending

At DCI Finance, our answer is net lending. We size the facility around the capital that is actually being deployed into the project — land, build costs and professional fees — rather than an inflated number padded by retained interest. And this changes the economics of the scheme in ways that are both simple and important.

First, more capital goes directly into the asset. That means more of the borrowing is doing productive work from the outset.

Second, it reduces day one leverage distortion. The debt position is clearer because the facility reflects real deployment rather than a blended figure that includes money reserved to service the loan itself.

Third, it produces cleaner LTC and LTGDV metrics. For developers, brokers and equity partners, that makes the capital stack easier to understand and easier to underwrite.

Finally, it also reduces drag. When debt is structured around actual deployment rather than retained interest, capital can move faster and returns can be assessed more honestly.

For SME developers, net lending ensures every pound borrowed is working inside the asset, not sitting idle in a reserve account. In practical terms, that improves capital velocity and supports stronger IRR efficiency, which becomes even more important as developers scale their annual pipeline and become more disciplined about how each pound of equity is recycled.

The impact on interest

The same principle applies to the way interest is charged.

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Another area where developer profit is quietly eroded is compounding interest. Month by month, the difference may look modest. Over a 12-18 month development cycle, however, interest on interest can eat materially into margin, especially if a project encounters the kind of minor delay that is normal in real-world delivery.

That’s why we use simple interest. Interest accrues on drawn principal only, not on rolled-up interest.

This eliminates exponential interest growth, reduces sensitivity to modest time overruns and helps to preserve more profit at exit. It also gives the borrower and their equity partners better visibility over cashflow.

For a developer targeting a 20%+ GDV margin, even a small amount of structural margin erosion can have an outsized impact on equity return. That is why I see simple interest as more than a pricing mechanic. It is a fairness mechanic. It aligns lender economics with project performance rather than allowing the lender to benefit from delay. It is more transparent, more commercially balanced and easier for capital partners to understand.

Of course, a well-structured facility is only part of the story. The other issue in today’s market is that many lenders are capital-rich but criteria-constrained. They are happy to fund straightforward residential schemes, but the moment a transaction steps outside a narrow definition of “vanilla”, appetite disappears.

The reality for SME developers

That is not how many SME developers actually operate.

Across the country, smaller builders are delivering infill schemes, small blocks, edge-of-town opportunities, conversions and mixed-use projects that larger institutions often overlook. Those deals still need capital, but they need a lender willing to assess the fundamentals rather than reject them on asset label alone.

That is why we take an asset agnostic approach. We look at location fundamentals, liquidity at exit, borrower capability, capital structure resilience and sensible leverage. That allows us to support a broader range of opportunities, from small housing schemes and permitted development through to mixed-use, semi-commercial and commercial assets with a credible exit, as well as selected planning-led and land opportunities where the underlying fundamentals are strong.

The combined effect of net lending, simple interest and an asset-agnostic approach means higher equity velocity, lower structural margin erosion and a broader addressable market – giving ambitious SME developers a more sustainable platform for repeat growth.

This is important, not just for SME borrowers and individuals, but to the wider housing market. If the country is serious about meeting its current housebuilding ambitions, finance has to work for the builders who bring forward smaller, locally nuanced and operationally complex schemes.

SME housebuilders do not need unnecessary financial engineering. They need certainty of funds, transparent pricing, fair interest mechanics and a lender that understands execution risk.

In development finance, the headline facility only tells part of the story. The better question is much simpler: how much of the money is actually working inside the asset?

In my view, that is why net lending maximises usable funds.