If the bank says NO, DFS can get you a YES!
Investing in property development can be a profitable venture, but it does take a lot of research, due diligence, and of course, funding. Australian investors who are looking to finance a property development project often turn to traditional banks or financial institutions for loans. However, in recent years, there has been a growing trend of investors using private lenders for property development loans.
In this article, we will explore why Australian investors should consider using private lenders for property development loans.
If you’ve looked into your property development finance options and decided that a property development loan is going to be the best funding solution for you, the next step is to find a lender that is going to work with you so that you can secure funding easily and effectively.
Most property developers know that a major bank will be challenging to work with when it comes to their property development finance needs. Non bank lenders such as private lenders can offer a range of benefits over banks and traditional business lenders. Let’s explore them in more detail:
Private lenders offer a level of flexibility and speed that is often not available through traditional banks. Private lenders can offer customised loan terms to meet the specific needs of the borrower. They are not bound by the same regulations and constraints that banks are, which allows them to be more creative in structuring loans. This flexibility can be especially beneficial for property development loans, where the terms of the loan can be tailored to the unique needs of the project.
In addition to flexibility, private lenders can also offer speed. Traditional banks are notoriously slow to process loan applications, which can be a significant drawback for developers, who often require funds quickly to secure their project. Private lenders can often provide funding in a matter of days, which is crucial for investors who need to move quickly on a project.
Private lenders are often more willing to work with borrowers who may not meet the stringent eligibility requirements of traditional banks. This can be particularly beneficial for when accessing property development loans if your business doesn’t have a long credit history or a blemished credit history. By securing the loan using exit strategies and repayment schedules, private lenders can offer property development finance to applicants who may otherwise be turned away.
Having a loan application declined puts a spanner in the works of any project. However, generally speaking, there are higher approval rates through private lending than through traditional business lending. This is because private lenders are more focused on the viability of the project rather than the financial standing of the borrower. Traditional banks may be hesitant to approve a property development loan if they perceive it as too risky, even if the borrower has a good credit history and collateral. Private lenders are often more willing to take on these types of projects, which can increase the chances of approval for investors.
Private lenders can offer opportunities for partnership that may not be available through traditional banks. Private lenders can provide not only funding, but also expertise and industry knowledge. Commercial property development and residential projects alike, can be complex, especially for novice developers. The guidance and industry experiences of private lenders can be invaluable when setting out on a development project.
Unless you have the funds to put a large downpayment on a buy-to-let mortgage or buy-to-sell mortgage, then the chances are that you’ll be looking at a property development loan to fund your next project.
Unlike a construction loan that only provides funding for the costs of building (or seriously renovating) a property, a property development loan can provide funding for the total cost of a development project. Under construction finance, you’re not able to borrow funds for land acquisition, planning and design or other pre-construction costs.
The two different types of property development loans offered by Diverse Funding Solutions are:
Gross Realised Value (GRV) and Total Development Costs (TDC)
Under a GRV loan, you lend against the projected end value of your development. Typically, you can access a higher loan to value ratio under a GRV loan. Though, bear in mind that the gross realisation value of a project may be significantly higher than the total development costs, especially if you are renovating an existing building and expect to significantly increase its value as a result of your development.
A TDC loan, on the other hand, provides funding for the total development costs of the project. This includes the purchase of the property, land, building costs, interest payments, as well as soft costs such as advertising for prospective tenants.
Private lending offers a level of flexibility, speed, and understanding that may not be available through traditional banks. Australian investors who are considering property development loans should explore the opportunities that private lenders can offer. Private lenders can provide not only funding but also expertise and industry knowledge, which can be invaluable to investors who are new to property development, as well as experienced developers.
At Diverse Funding Solutions, we have access to over 200 of Australia’s top private lenders, meaning that you have the ultimate choice when it comes to your development funding options. Our lending solutions are designed to work with you and your financial situation to help you overcome the stringent lending criteria imposed by the major banks and other traditional lenders.
Whether this is your first development venture, or you’re an experienced property developer, you can quickly and easily get your development finance application underway by accessing an express quote, or talking with the team at Diverse Funding Solutions, today.
