Raising the right finance is crucial to the success of your project but, with so many options out there, how do you work out what is right for you and which route is best to take? Michael Primrose talks about the search and some of the key points which you might need to consider in order to achieve the best outcome possible.
Know Yourself, Your Goals and Your Aspirations
This is a big one and I have put this one first for a reason. Knowing yourself is very important when raising finance. Why are you in property? Why are you doing this deal? What are your goals and aspirations? If you know the answer to these, then you know what you need to look for in your finance.
You may want to raise just equity, or you may just want to raise debt. Having a deeper understanding of yourself, allows you to make more informed decisions moving forward. Knowing your goals and aspirations allows you to make decisions when looking at schemes as to whether they fit in with your long-term vision.
Property is about thinking for the long term rather than the short term, so get as clear as possible on the long term as quickly as possible. This will also assist you when looking for investors, as it will help to align the synergies between you.
Be prepared for raising finance. Create yourself a Dropbox file or a Google Drive Folder that you can share with your Broker. You want to include the following in this file:
- Proof of Address (utility bills etc)
- Certified ID (Driving License/Passport)
- Personal Bank Statements (last 3 months)
- Business Bank Statements (last 3 months)
- Business Accounts (N/A for SPVs)
- SA302s if you are self employed
- An up to date portfolio schedule (showing property value/mortgage outstanding and rental income)
Make sure that these documents are kept up to date and that they are ready to go across to the Broker/Lender as quickly as possible. Also, make sure that you have information to hand around your project. Lenders will want to see Cashflows, Appraisals and details of the scheme/purchase. Having these to hand will show a knowledge of the project as well as helping things to move quickly. Getting a Gantt chart completed will also allow you to understand your cashflow and timelines, and help budget for pinch points in your project.
Every property/scheme that you offer on should have a folder on your computer with all the documents relating to it. I would also recommend creating a pack for each one showing the following:
- Details of the Property
- The Numbers (I.e your appraisal!)
- A section around the location of the property and the local area
- A section about you and your experience in property
- A ‘know your team’ section
Make sure you have your team in place ready to do deals! This is not an exhaustive list, but make sure you have the following:
- Planning Consultant
- Commercial Finance Broker
- Main Contractor
- Project Manager
- Quantity Surveyor
- Insurance Broker
The different parties will allow you to push forward and do more deals than you could do on your own. Also, Lenders are now becoming more interested in the team that you have around you, and they are starting to accept their experience as a backup to your experience.
Development Lenders are especially starting to accept Borrowers who may not have experience but have a good team around them. This is case by case and may not work for everyone, but having a top team around you allows you to increase the odds of raising finance.
Know your Numbers
I am shocked by the number of Developers and Investors who come to me looking for finance, who do not know their numbers inside and out. When going for commercial finance, you should know your numbers inside and out, you should be aware of how much the build is going to cost you, and the profit you are expecting.
If you do not know your numbers, then the Lender will never have confidence in you. When you have confidence in your numbers, the Lender will have confidence!
More and more Development Lenders are now going down the route of having their own in-house Quantity Surveyors, so they now have the ability, in-house, to analyse your build costs with a fine-tooth comb! So, it is more important than ever to make sure that your numbers are accurate, as you will get found out if you are fudging numbers!
Speaking to a Builder early on will allow you to get a handle on build costs, and similarly, speaking to an Estate Agents and Valuers early on will also allow you to get a handle on the sale values.
Know your Finances
You need to know your own finances! Knowing what you can afford and what you have access to is key! I get more and more deals now where Clients think they have access to more cash than they do, and this can cause huge issues when they realise there is a shortfall in funds. You also need to know what you have access to on a monthly basis, as you may need to pay interest monthly, and this needs to be affordable.
If you have a good handle on your own finances, then it is easier for the Broker/Lender to work with you to get the right finance in place. You need to make this as easy as possible for them!