Development Finance 101 for First-Time Developers

If you’re taking your first step from ‘investor’ to ‘developer’, development finance can feel like a different sport. The money is bigger, the timelines are longer, the paperwork is heavier, and the lender isn’t just underwriting you – they’re underwriting a moving project with multiple points of failure.

The good news: most first-time developer deals don’t fail because they’re bad deals. They fail because the package is incomplete, the risks aren’t explained, or the numbers just don’t stack up in a way a lender’s credit committee can get comfortable with.

This article tries to demystify development finance for newer developers, by addressing:

·      What do development lenders typically want to know?

·      What risks are development lenders trying to address?

·      How can you present your development project like a seasoned developer  – even if it’s your first?

The core question for any development (or bridging lender) is: ‘How do we get our money back?

Every development finance deal is underwritten around three pillars:

1.     The asset – the site, planning status, buildability, valuation.

2.     The borrower – experience, credibility, financial resilience.

3.     The exit – sale or refinance, is it realistic and can it be evidenced.

Everything else – QS reports, appraisals, monitoring – exists to reduce uncertainty around these three pillars.

Lenders like risk they can identify, measure and mitigate. Your job (and mine as a broker and advisor) is to help them with all three.

Step One – Provide a 1-Page Summary

The first step in securing development finance is to provide a summary of the project to the lender. Before anyone wants to wade through planning documents and unpick spreadsheets, they want a summary narrative:

·      What is the project?

·      What is the property like now, and what are your plans for it?

·      What will it cost, and how long will it take to develop?

·      Who is involved, and what is their development experience?

·      What is the current market value and the GDV?

·      What is the exit?

Your one-pager should therefore typically include:

• The site address and description

• The proposed scheme: number of units, size, tenure

• Planning status (and S106/CIL)

• High-level numbers:  purchase price, build costs, other fees, GDV, profit

• Funding request – how much do you need to borrow?

• Exit strategy – sale or refinance?

• The borrower – who is involved in your team, and what is your/their experience? If you’re a first-time developer, have you completed any refurbs? Being a first-time developer is not a deal-stopper, but it’s important to provide all your property experience.

A Note on Planning

Planning is rarely binary. Lenders will probe the type of consent, pre-commencement conditions, S106/CIL triggers, highways/access, surveys (flood, ecology, contamination), and title issues (covenants, easements, ransom strips).

If you know something in the development plan is awkward, don’t hide it. Put it in the pack with a short solution: issue, plan, who is handling it, timeline.

The Appraisal Pack

This is the lender’s due diligence toolkit. A typical lender (and their valuer/monitor) will want: decision notice and drawings; design pack; build contract route; tender/costings; programme; sales comparables (or rental evidence for refinance); professional team list; and borrower info (ID/AML, CV, evidence of previous projects, assets and liabilities summary). Supply this early and cleanly and you’ll move faster.

The Quantity Surveyor (QS) – why they matter so much

In development finance, the QS is the lender’s reality filter. They validate your cost plan, assess the cost-to-complete, recommend drawdown stages, and monitor progress to sign off drawdowns. If your build costs are vague or wrong, the QS will expose it – and your facility may be reduced. A transparent cost plan with sensible contingency often beats an unrealistically tight budget.

Day-one funding vs drawdowns: how development finance flows

Development finance is usually a Day 1 advance plus staged drawdowns for the build, released as works progress. Lenders care about your equity, whether you can cover overruns, and whether the project can survive delays. Expect the facility to be shaped by loan-to-cost (LTC), loan-to-GDV (LTGDV), interest treatment (serviced or rolled-up), and contingency (lenders will usually want a minimum of 10% to handle cost overruns).

Your experience: how to look credible as a first-time developer

Lenders look for transferable competence (refurbs, contractor management, budgets, planning, professional team coordination) and a strong team around you: experienced contractor, credible architect, lender-friendly solicitor, and a reliable QS. A first-timer with a strong team can be more bankable than an experienced developer who cuts corners.

The numbers: what lenders sanity-check immediately

Lenders will usually lend 60-70% of the GDV, to include all interest and fees. They will usually lend up to 70% of the site purchase price, and up to 100% of the build costs, subject to an overall loan-to-cost (LTC) of 80-90%.

Lenders stress-test GDV (quality of comparables), sales rate, build costs, profit margin buffer, programme realism, and whether interest/fees are properly included. A common mistake is optimistic GDV plus optimistic costs – that’s how deals get down-valued and underfunded.

The exit strategy – where deals most often break

Your exit is sale or refinance. For sale, show comparable evidence, any estate agent commentary, and a sensible pricing strategy. For refinance, show rental evidence, likely product type, a stress-tested view of affordability/lender appetite, and timing – because refinance is rarely instant at practical completion. A good broker will run the refinance plan early so the development lender isn’t taking a leap of faith. In some cases they will even want to see an approval in principle from a suitable BTL lender.

Legals – why it takes longer than you think

Expect more conditions, more reporting, more third-party inputs (valuer, QS/monitor), and heavier AML/source-of-funds scrutiny. Your best lever for speed is preparation: ID/AML ready, clean source-of-funds, company docs (if SPV), and a solicitor who does development finance regularly.

The Final Word

Lenders don’t hate first-timers – they hate surprises. Show you’ve thought through the risks, built a strong team, modelled conservatively, and have a credible exit plus a back-up plan B.

If you want, send me a brief scheme summary (purchase price, build budget, GDV, planning status, exit) and I’ll tell you what a lender is likely to focus on and the most suitable funding route.