How to Choose the Right Finance Partner for your Development
Securing finance with the right finance partner centres around the careful science of matchmaking.
As we all know, one of the fundamental elements of a successful partnership is compatibility. This is no different with development finance.
When starting your search for the right finance partner, the first step is to become aware of both your strengths and weaknesses as an applicant. This will allow you to focus on mitigating your weaknesses and leveraging your strengths to find a financial match that will work for you.
When you know your strengths and weaknesses, you can start looking for a finance partner who’s lending guidelines most closely align with you and your objectives in order to have the best chance at achieving your primary financing requirements.
In many cases this will require you to find multiple partners at any one point across all of your projects and over time as your business matures and changes. But, primarily, you need to know – objectively – what your strengths, weaknesses and financial priorities are so you can take steps toward finding the perfect financial match.
With development finance becoming more difficult to secure, it is imperative for developers to find the right finance partner, specifically one that will help them navigate the entire finance process and ensure their projects gain access to bespoke finance solutions that suit their individual needs.
But, where do you start in such a diverse market of finance partners?
The best solution is to find the most experienced and specialist advisor. Ideally, this advisor will have the strongest demonstratable track record of success of advising people just like you. However, there’s more to it than that.
Here are the steps developers can take to ensure they find the right finance partner for their project:
Understand The Project’s Financial Requirements
In order to ensure the best match with a financial partner, a developer first needs to understand the nuances of their own project, and have a clear idea of what type of finance is needed and how to pitch the strengths and weaknesses of the development to a potential lender.
Having a comprehensive understanding of the development’s budget, target sales market and the risks and financial requirements in specific market conditions are essential to creating successful strategies going forward, and will help narrow down finance partners that are well versed in that specific project type.
The more you understand about your own development, the more specific you can be when searching for a finance partner, and you can find a partner that has demonstrated experience in projects of a similar scope. For example, if you want a financier that doesn’t require pre-sales, you can seek out a partner who can access finance with that specific requirement.
Depending on the financial requirements of the projects – from no pre-sales, expedient approval processes and a number of loan structures – developers should look for a finance partner that is willing to work with them to secure the most suitable form of finance for the project.
Before securing funding for your next development, it is imperative that you communicate with the financier about any project concerns. The due diligence process can only increase your credibility with financiers and position your development as less of a financial risk.
By the same logic, the more a developer understands the capabilities of potential financiers, the more confident they’ll be in knowing they’ll have access to the right lender for the project. By listening to your network and investigating the history of a finance partner, it can improve the potential of your development from the outset.
Know The Market
Non-bank finance continues to move into mainstream acceptance as developers are increasingly struggling to access loans from traditional lenders. Recent restrictions on investor loans and high-risk mortgages have put Australia’s banks under considerable pressure, dragging the rate of new investment and number of new home buyers down.
However, the changing nature of development finance has allowed alternate sources of funding to make themselves known. With non-traditional lenders, developers can commence and complete projects at a faster rate and reduce holding costs commonly associated with bank lending. Alternate lenders offer speed and efficiency for loan applications that are free from risk of tighter regulator caps.
The trend towards non-bank lenders has only increased over the past year with sharp reductions in investment lending and a slowdown in credit growth. Non-bank lenders are already successfully established in Australia and typically practice a more personalised approach to financing new developers. As the strong owner-occupier market shifts in favour of targeted developments, non-bank lenders are able to work more directly on a personal level with developers.
The key to finding the perfect finance partner is choosing a firm that has access to the best funding options in a volatile market, while offering a variety of flexible loan options depending on specific developer circumstances.
Find a Full-Service Finance Group
Many Australian lenders, both traditional and non-traditional, only offer the finance component to a development. A full-service finance group takes the time to work with sales agents, quality surveyors, valuers, project managers and even existing financiers to make a development financially viable.
Consulting with the right professionals will inevitably contribute to the success of a development. Working with a finance partner that can communicate and complement an existing development team is an asset that shouldn’t be overlooked, and can have a significant positive impact on the overall project.
Companies such as Development Finance Partners are challenging the traditional finance sector by providing more personalised services, such as strategic advice to developers, as well as support for project management that goes beyond initial financing.
In order to secure the best financial outcomes for a project, developers should choose a finance partner that is able to create an complete development finance strategy (which is designed to mitigate risk and optimise returns), while also demonstrating extensive experience in the nuanced financial aspects of a specific project.
Contact us to discuss a finance partnership for your project.
Could your next project benefit from some expert development finance? Get in touch.
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