With the demand for new homes still sky high and house prices falling, now is a great time for new building projects. Reading the news though, you would be forgiven for thinking otherwise, with worries about access to financial borrowing for small construction firms being widely reported.

Thankfully, as a small business financial advisory service, we know the opposite to be true. There are some excellent opportunities to secure the right funding if you know where and what to look for.

Specialist lenders want your business so they are willing to be somewhat flexible with criteria, while being prepared to negotiate on rates.

What are the main types of finance available to small housebuilders and property developers looking to embark on a housebuilding or renovation project?

Bridging loans

Whether you’re looking to start a new project or complete one, a bridging loan can provide you with quick access to funds — sometimes within a few days of your application being submitted.

It’s a short-term loan that ‘bridges the gap’ and you’ll be able to pay back the loan upon the sale of the finished or renovated buildings, or if you decide to refinance.

Bridging loans require you to have an exit planned — such as the sale of the property/development — and be prepared to pay a higher interest rate.

Property development loans

This is specifically designed for funding the construction or renovation of a property project.

Development loans are essential for those who have a strict budget and need to be disciplined about sticking to it, as the funds are released to the borrower in instalments for each stage of the build.

You are likely to be asked for evidence of delivering previous developments before your loan is approved.

Generally, the maximum GDV is often around 70%, with the LTGDV calculated on the estimated value of the property on completion.

Borrowing for the development work can vary between 85% to 90% of the total cost of a project and in some cases, the lender may also fund 100% of the work.

Lenders will often require a lot of detailed documentation before approving a loan. This can include build costs, purchase price or site value, building plans and any debts accrued so far.

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A quantity surveyor will also be required to sign off each stage of the build before you can draw down the next loan instalment.

Joint venture (JV) / equity finance

Joint venture (JV) finance — also referred to as equity finance — allows property investors and developers to combine their resources to achieve the completion of a project.

JV finance is useful if you are unable to fund a project on your own, want to share skill sets across two different companies, or have spare capital to start a new project.

If you have a trusted relationship with another builder or developer, it means you can pull your resources together on a significant building project, while sharing the risk and the financial responsibility.

But you must share the same enthusiasm for the project, similar objectives and appetite for risk, while working together towards the same end goal.

It's important to seek legal and financial advice before entering into a joint venture to ensure that all parties understand and agree the terms of business.

Top tips for ensuring you get the right funding for your project

1) Have a clear business plan: A well-thought-out plan is essential when seeking a loan. It should include a detailed description of the project, market analysis, financial and projections. It should also demonstrate a realistic understanding of the risks involved and how they will be managed.

2) Show previous success: Providing evidence of successful previous projects, such as completion on time, within budget, and with high-quality results, can help to build confidence in the lender.

3) Provide strong financial statements: Housebuilders need to show that their company is in good financial health, by showing balance sheets, income statements, and cash flow statements. It's also important to provide any relevant tax returns, financial projections, and any outstanding debts.

4) Be prepared to answer questions: Lenders may want to know about your proposed project, financial statements, or your experience. Being prepared to answer these questions fully will demonstrate your knowledge and understanding of the project and help to build trust with the lender.

5) Demonstrate market demand: It's important to provide information about the local housing market, demand for new homes, and any relevant demographic information to show that the project is viable.

6) Provide collateral: Lenders will want to see that the loan is secured by collateral. This can include the land or property being developed, as well as any other assets that you may have.

7) Work with a reputable team: Recruit a reputable team of architects, builders, and lawyers. This will demonstrate that the project is in the hands of professionals with experience and expertise in the industry.

8) Seek the help of an expert financial advisory service: At Provide Finance, we can support you all the way from compiling the necessary documentation to deciding on the most appropriate product and lender.