Development Lending & Construction Lending

If you’re planning to build a townhouse, a managed community, or anything in-between, the first thing you’ll need is adequate financing to back your plan. Most competent property developers opt for a development loan to help finance their construction projects. If you’re on the lookout for a good way to fund your development, it can be overwhelming to sift through all the private or public lenders in the market.

This is where Hubbe can help. With an expert team of seasoned professionals, Hubbe helps property developers like you secure the construction loan or the development loan you require to bring your dream alive. We partner with various private institutions as well as banks to bring you the kind of financial assistance that’s tailor-made for you. We also help developers understand the lending market better. In this article, you’ll find the answers to various questions you might have had about development finance.

Why do some developers not prefer bank-sponsored development finance?

Normally, when you approach a bank for a development and construction loan, you’ll be asked to submit a series of documents. As a result, the process of applying and obtaining development finance becomes stringent and long-drawn. This is one of the primary reasons many property developers find it tedious to approach a bank for a construction loan. There are other reasons, too that prevent builders from opting from a bank-approved development loan. 

Here are some of the most common reasons that keep property developers from obtaining a bank-sponsored loan.

  • Poor Credit Score: Banks do not offer development finance to developers who possess poor credit scores. If you’ve had a history of late repayments, a bank loan may be out of your scope.
  • Unfavourable LVR: Banks take the loan-to-value ratio (LVR) into consideration before lending financial assistance for constructing a property. In case the LVR is less than favourable, it’s likely that you may find it difficult to obtain a bank loan.
  • Inadequate Financials: You need to have your books of accounts and other financials in order before approaching a bank for a construction loan. Many small developers may not be able to provide all the financial documentation required by banks.

Fortunately, if you suspect that you might be ineligible for a bank-sponsored loan, there’s still good news. Low doc or no-doc development lending is helping many property developers get their plans off the ground. Let’s dig a little deeper and find out more about this practice.

What is low doc development & construction lending?

Unlike regular loans, where you can borrow large amounts of funds without having to jump through multiple hoops, a construction loan isn’t easy to obtain. Lenders often calculate the nitty-gritties very strictly. They even require a variety of documentation, ranging from your income details and tax payment details to the plans of your proposed project.

Low doc construction lending is a unique practice devised to help small-scale developers and self-employed builders. With this option, they can obtain the financial assistance needed to kickstart their development without the added burden of offering up detailed documentation.

Generally, builders may opt for low doc loans for any of these reasons:

  • Poor or no credit score
  • Insufficient documentation
  • No-so-favorable LVR parameters
  • No proof of income

Who can apply for a low doc or a no doc construction loan?

Succinctly put, anybody can apply for a low doc construction loan. However, getting into the details is necessary. Typically, low doc loans are sought out by builders and developers who are self-employed or have non-traditional sources of income. In these cases, it’s often impossible to offer proof of income as documentation becomes difficult. As a result, such developers overcome this roadblock by opting for low doc loans, which don’t require extensive documentation as proof of repayment capacity.

If this is the case, how do lenders ensure that their investment is secured? They do this in one of two ways. Some lenders only offer low doc loans to borrowers with a reliable credit score. Others, on the other hand, require a down payment that is larger than normal. They may also charge higher interest rates.

So, the question of eligibility is only answerable by you. Are you willing to either offer up a large down payment or repay the loan at a higher rate of interest? If that’s the case, a low doc loan may be just what you need to get your development going.

How can you obtain a development loan?

Whether you decide to take the traditional route and borrow from a bank or opt for a low doc loan from a private lender, it can be daunting to begin the process. Here’s where a broker like Hubbe can help. We act as the intermediary between lenders and borrowers like you. However, if you’re still not sure about what a development loan broker does, let’s explain.

What is a development loan broker?

A development loan broker (also referred to as a construction loan broker) is an agency or an individual whose primary responsibility is to help developers secure the financing they need. Some builders also refer to these third-party agencies as mortgage brokers. In addition to facilitating a connection between borrowers and lenders, development brokers also perform a variety of functions. Some of them are explained here.

  • Bridging the gap between the parties involved: There’s a huge gap between lenders and developers in the construction industry. Mortgage brokers like Hubbe help bridge this gap and facilitate a possible deal between these two parties, so both are benefited reasonably.
  • Collating the paperwork: Financing is always accompanied by paperwork. Even low doc loans require minimal filing like submitting bank statements or tax returns. Brokers can help you get your papers in order before approaching the right lender for you.
  • Negotiation on your behalf: While some lenders lend funds at strictly fixed rates of interest, others may move up or down a little depending on factors like your credit score or your income. Development brokers can help you get the most competitive rate in the lending market, so you’re not stuck with unnaturally high interest rates.
  • Verification and legal assistance: Verification of documents is also vital when you decide to opt for construction finance. Mortgage brokers can offer you the assistance you need to complete the verification process and can point you in the right direction as far as legal aspects are concerned.
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What are the advantages of taking a construction loan?

A development loan comes with many benefits for developers. These reasons make it a more viable option than ordinary loans. If you’re involved in a development project, here’s why a construction loan can be beneficial to your business and your project.

  • Longer repayment periods: Most lenders offering development loans are flexible with the repayment periods they set. This period can range between 10 and 30 years, or, in some cases, extend even further.
  • Tax benefits: Mortgage repayments may even offer up tax benefits depending on the specifics of your financial profile. So, it’s always better to opt for a construction loan as opposed to a regular unsecured loan.
  • Sizeable loan amounts: Getting a development project on the floor calls for a massive investment. Construction loans can help you gain access to that kind of secure financing.

In addition to these benefits, opting for development finance may offer other advantages as well, such as expert support, improved cash flow management, lower interest rates, and even the freedom to retain ownership of your business and assets instead of offering them up as security.

Does Hubbe offer assistance to developers seeking financing?

Hubbe’s primary goal is to help developers turn the projects they’ve conceived into reality. To further this objective, we specialise in acting as the brokering agent between developers and lenders. If you seek bank funding, we can make that possible. All you’ll need to do is meet these criteria:

  • An LVR that’s 65% of GRV (excluding GST) or 75% of the Total Development Cost, whichever is lower
  • Preferably 100% debt-coverage in the pre-sales phase
  • Ability to provide a complete set of your financials, maintained as per the regulations in place
  • Verifiable and adequate industry experience

However, that’s not to say that we don’t offer a beacon of light for developers who seek non-bank funding. If that’s you, here’s what we have to offer:

  • Non-bank, non-conforming finance alternatives that don’t require 100% debt coverage in the pre-sales phase
  • Low doc development loans for self-employed developers

We have a vast network of lenders who belong to private as well as public lending institutions. The rates of interest we offer depend on your individual profile as well as on the kind of lender you opt for. Either way, you can rest assured that Hubbe will help you get the best kind of financial assistance available in the market.

So, whichever category you may fall into, all you need to do is give us a call or write to us. We’ll get in touch with you and help figure out the best possible solution to your development loan requirements.

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