Five Steps to Finance – How to get your lender onboard with your development


The latest official data on the construction industry gives a perfect illustration of how finely balanced things are for property developers right now.

On the plus side, there is still plenty of momentum. While the UK economy as a whole contracted in March, construction grew by 1.7% to become the only industrial sector to still be expanding. The fifth consecutive month of growth took construction output in March to £15bn, the highest monthly figure on record.

But despite this strength, the headwinds are picking up. With the prices of building materials, labour and transport costs all soaring, the annual rate of construction output price inflation hit 7.3% in March, its highest level since records began.

Meanwhile the war in Ukraine and UK sanctions on Russia have disrupted the supply of key building materials including steel and timber. As a result, property developers are grappling not just with rising prices but also the threat of long and costly delays.

And yet house prices continue to rise and demand for new homes remains robust – so there are opportunities aplenty for astute and agile developers. But success in the current market requires the right finance, and above all, the right finance partner.

Development lenders rightly ask searching questions of would-be borrowers. Here’s a simple guide to how best to answer them right now:


1. Construction cost

Seldom has it been more vital – and more difficult – to give an accurate figure for how much a project will cost to build. Inflationary pressure remains very high for many key materials, transport and labour costs, but a detailed development appraisal should bring as much certainty as possible, by setting out which costs are fixed and which are liable to increase.

Clearly the more costs that can be fixed, the better. For works packages that have already been tendered, it should be made clear how long the chosen contractor’s quote is valid for.

Top tip: Even the most detailed cost schedule is at risk of slippage in the current inflationary environment. Developers should repeatedly ‘stress test’ their forecasts and allow sufficient headroom for a range of unexpected cost increases.


2. Track record

Whether the developer opts for design and build, or plans to lead the procurement process themself, the construction phase of a scheme is only as good as its supply chain.

That’s why when we assess a development’s prospects, we study not just the developer’s track record, but that of their chosen contractors too. We’re looking for evidence that suppliers have relevant experience and expertise, are in sound financial health, and if they have an established relationship with the developer.

Top tip: Contractors who’ve proved themselves to be dependable are worth their weight in gold, and many developers form strong bonds with suppliers they’ve worked with previously. Having a reliable supply chain in place for your project is an asset that will significantly boost your chances of securing finance. Think about how you can document this and demonstrate it to the lender.


3. Programme precision

Time is always money, but especially so in a complex, sequential building programme where the delay of one element can upend the scheduling of many subsequent steps.

Even in a benign market, a good programme will factor in not just the construction works, but also any enabling works, the likelihood of delays (for example extended delivery times for materials, or congestion in the planning system) and a sensible sales period.

In the current market, in which high demand and constrained supply are combining to cause lengthy delays as materials increasingly come from alternative but faraway sources, knowing the origin of key materials is vital.

Top tip: The financial implications of a project overrun may vary according to both the length of the delay, and its cause. Developers should familiarise themselves with the delay clauses in their construction contracts, and check their lender’s Terms and Conditions, to understand how a delay would impact them.


4. Exit

Whatever type of finance is being sought, this is the most perennial of lender questions. Whichever exit route is chosen, be it a plan to refinance at the end of a bridging loan term, or the sale of completed properties, the proposed exit must be realistic and achievable, not just in today’s market, but also in the market expected at the time of sale.

Top tip: The more detail developers can give about the local property market dynamics, and their intended marketing strategy, the better. This should go beyond the proposed sales price of each unit, to include how and when off-plan sales will start, and which agent will be instructed. Evidence of a well-researched contingency plan that can be activated if the market turns significantly is also welcome.


5. Finally, finance

It isn’t widely recognised that lenders all have different lending appetites. In practice this means a developer’s application may tick all the boxes for one lender and none for another. Of course, rates and costs are important, but working with a lender who really likes your scheme is important, as you’ll be in partnership with them for a couple of years.

Nowhere is Atelier’s commitment to partnership more evident than in our attitude to the drawdown schedule. We believe drawdown works best when lender and borrower agree it together.

So when we’re forging a partnership with a new developer, our team of expert surveyors will work through the programme to agree when and how funds will be released.

Top tip: Remember the total cost of finance may be considerably more than the interest. Borrowers should read the Terms & Conditions of their facility closely and consider how a project delay, or a missed repayment, would impact them.


Strong partnerships are built on transparency and trust. The benefits flow both ways and so do the responsibilities. While the lending criteria of different lenders will vary, all have one thing in common – a desire to lend.

The best deals are struck when the interests of both sides align. Yes, would-be borrowers will need to satisfy the lender’s requirements. But developers should also use their judgment and instinct; if they can’t see a prospective lender becoming their partner, they should get their finance elsewhere.