Development Stretch Funding
Development stretch funding is a finance structure that combines both senior debt and mezzanine funding into one facility from a single lender. It may sound a strange term but actually development stretch funding can mean just one lender to deal with and avoids complex inter-lender agreements.
For property developers this means that they can spread their capital across either a larger number of projects or more ambitious projects. As with traditional senior debt such a facility will be secured by a first charge on the asset by the bank.
Many high street banks will limit their loan to cost (these costs may include the land acquisition, construction costs, professional fees, etc) to say 60%. This means that the developer will have to raise the additional 40% from their own cash or through a separate funding course such as mezzanine finance.
However, an alternative option is to approach a property development funder for a development stretch facility. Such a development stretch facility can be as high as 90% of the total costs and sometimes even 100%.
A development stretch facility of 100% is possible where the developer can offer some alternative security of the overall loan to gross development value (LTGDV).
Features of stretch funding:
• Funding up to 90%, or possibly 100%, of costs
• Blended loan rates
• Loans from £500,000 to £100m
• Loan terms from 12 months to 3 years
• Usually up to 70% loan to gross development value
• Rolled up interest
A stretch facility of 100% is possible where a developer can offer some alternative security.
What is Development Stretch Funding Used For?
Development stretch funding is used for new build developments, refurbishment developments and mixed use projects.
What are the usual lending criteria for development stretch funding?
- Planning consent in place
- First charge security and personal guarantees
- Anti-money laundering criteria must be met
- Experienced developers with a proven track record