What is a Commercial Property Development Finance?

By Rose Brown
Content writer
Published: 15 September 2021 | Last update: 8 November 20211 minute read

Everything you need to know

Here's a summary of what you need to know when starting out in property development and the types of finance you may need.

Table of Contents

Property finance for property developments is usually a short term loan that covers the costs of converting or renovating an existing property. This could be any of the following:

  • Converting existing properties 
  • Developing land into housing or flats
  • Houses in multiple occupation (HMOs)

Property finance is usually given as a loan that is secured against that property or other land assets.

There are multiple property development finance options available for investors, developers and landlords to access, and these are usually:

  • Commercial mortgages
  • Auction finance 
  • Development finance or bridging finance 
  • Mezzanine finance

This guide will give you an overview of what property finance is, how to get started in property development, and how to raise finance if you’re a property developer looking to expand your portfolio of rental property. 

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What is commercial property finance?

You may have come across the term ‘property finance’ when looking at your business funding options, and perhaps you’re still a little unsure about what this type of lending product entails?

Multiple different variants can be used to describe property finance products, but some of the most common and commercial finance, bridging finance, term loans, and interest-only loans. 

Property finance is probably one of the most straightforward funding options on the market, and simply put, it’s a secured business loan.

When people access property finance, they usually secure a loan against a residential or commercial property, and usually, a property portfolio will be used as collateral. 

This type of business loan is ideal for those businesses that have the potential to grow, but due to the lack of capital, they’ve not been able to achieve that desired level of growth. 

Choosing the right lending option for your growing business may be the difference between your business growing or failing miserably. 

As a business owner, it’s crucial that you know what funding options are available to you, as the lack of awareness could be the main reason your SME fails when you need access to funding the most. 

Our range of property development funding options allows you to find a solution that will suit your business. Rangewell will ensure that you get the best funding solution to suit your specific needs. This could be a tailored solution that includes a combination of our products. 

Property finance is also a good option if you feel that your business doesn’t meet the standard lending criteria. So if your business has experienced adverse credit, we still want to hear from you. Speak to Rangewell to find out more about your property finance options 

From bridging loans to commercial mortgages and everything in between

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What is commercial property development?

Whether you’re the prospective owner or a lessee of a commercial property, you need to know what necessary steps to take when financing the development of your space. What design do you need to ensure maximum productivity levels for your staff? How will you afford it? What commercial finance companies are out there to help you grow your business? 

There are many moving parts involved in renovating or building commercial real estate to tenant’s specifications. Top commercial real estate developers will handle every aspect of the developments process and work closely with tenants to create their space. However, managing a commercial development on your own can become time-consuming and expensive without that professional experience. 

In order to become a successful property developer, speak to our team of professional brokers who can help source the right deal to suit your need. We can tell you everything there is to know about commercial property finance rates and commercial property funding. 

How do I get started in property development?

Property development brings complete satisfaction when you see a neglected building that is brought back to life. When done right, it can also bring both short term and long term financial rewards. 

If you’re thinking about getting started in property development, you’ll need to decide on the type of property development you’d like to go into. Perhaps you want to get into residential property (buy-to-let) property, or agricultural property? -  you don’t have to stick with this decision forever, but it’s helpful to know what you want to get out of your first project. Some key questions you should ask yourself are:

  • Will the final property be sold, or will you rent it out?
  • Do you plan on renovating a run-down property, or are you building from scratch? 

Once you’ve decided which path to go down, you now need to think about your business plan. If you’re looking at developing a property on the side of your regular job, you’ll still need to look at this like it’s a new form of business. 

Your plan should include your businesses aims and goals, a breakdown of your finances, costs and potential incomes, and it should reflect your knowledge of the industry and research into the sector. 

You should always source legal advice if you're not sure on how to get into property development. 

Get funding 

There are many funding options available to property developers, from mortgages to bridging loans. The type of funding you will choose will depend on your circumstances and the type of property you’ll buy. If you’re looking to purchase a property that is run down and has little value, it can be hard to get a mortgage that would cover renovation costs. A Bridging loan can help you in this situation.

To find out more about our commercial property investment opportunities, speak to Rangewell who have an in-depth knowledge of the commercial property finance sector and commercial property market.

How do property developers raise finance?

Property developers can improve their chances of being able to raise finance in many different ways. Making sure the correct planning permission (if needed) is probably one of the most critical steps. A robust application process will set you on a positive footing, so be sure to fill in all documents carefully. 

At Rangewell there will be a type of finance to suit your needs. Get in touch to learn more about our private mortgage and finance for property purchases.

What commercial property loans are available?

As mentioned earlier in this guide, commercial property finance has many different variants; while this is great, it makes the application process complex and difficult to understand. Rangewell has products to suit your business needs. Here’s an overview of the different types of finance available on the market. 

Commercial mortgages 

Commercial mortgages are available to a range of businesses from sole traders and limited companies. Lenders can usually fund up to 75% of the purchase cost over a term of 30 years. Lenders will secure the mortgage against a first charge, and the affordability is based on the profitability of your business and the ability to make monthly payments. 

Property development finance 

Property development finance is usually in the form of a short-term funding that will be used for a new build project or to cover the refurbishment costs of the existing property. Lenders usually will look at advancing up to 70% of the gross development value, and terms can be up to 24 months. 

To find out more about property development costs speak to the team at Rangewell.

Portfolio finance

This is a long-term business loan that is offered to property investors who own over 4 properties. Lenders will consolidate all borrowing into one loan. The serviceability is usually dependant on rental income. 

Bridging finance 

Bridging finance is another short term solution that is often favoured by property developers and investors, which will provide a quick way of financing the purchase of a property. The lender will usually take the first charge on the property, and then they will usually seek an exit once the loan has come to term. 

Auction finance 

This form of finance is designed for experienced property developers and landlords. It’s a way of organising funding in advance of an auction. So you can secure finance before buying a property at auction. 

Mezzanine finance

This form of finance is a little more complex. It combines elements of debt financing and equity investment. Mezzanine finance often helps property developers to reduce cash flow requirements, allowing them to finance development projects which would usually allow a larger capital share.

For advice on property financing, speak to the Rangewell team that will help source a deal that's right for you. 

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Depending on what time of project you plan to take on, there is a type of finance to suit your requirements. For example, a refurbishment bridge will fund around 3-24 months of building costs and sometimes come with the opportunity to convert into a mortgage later on. This product will cover the majority of light and heavy refurbishment. 

For more complex projects such as ground-up developments, you can find development finance to cover land purchasing and building costs. 

Experienced property developers who act as landlords can also use property that they already own to secure lending. If there’s enough equity free in your portfolio, this allows more finance to buy more properties. Thus, you can grow your property portfolio without having liquid cash. 

If you're looking for a loan for property development, speak to Rangewell today. 

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