Sales Period Funding

Exit Finance to Help You Plan Your Exit from a Project

A good property developer knows how to spot opportunities and make them count. An expert developer, however, always knows when to exit a project. It’s only reasonable because, after all, the eventual profitability of the project will only be decided after the exit falls in place.

This is where things get interesting. Many seem to think that property development is all about finding good opportunities and waiting for the investment to grow. The reality couldn’t be more different. Many projects hit unexpected roadblocks on their way towards completion, thereby diminishing the profits. On the other hand, at times, a nearly-there project may take longer to find tenants, buyers or investors. All these factors combine to make exiting a project difficult for the developer. This is when an affordable exit finance package can be immensely useful.

What is Exit Finance (Sales Period Funding)?

Exit finance, also known widely as sales period funding, is a specialty type of Development Finance . In spite of that being the case, it differs in some ways from the very idea of Development Finance.

To understand what exit finance is, it’s important to understand how property development projects work. The driving force behind developers undertaking such projects is the prospect of generating regular income or a one-time sale-off profit. There are three main stages that most development projects take shape in:

• Acquisition
• Development
• Exit

Acquisition involves purchasing a property from the original seller. Developers can also acquire the rights to the property by means of a lease contract. Once the property is under developer’s control, the development stage commences. This involves new build, refurbishment and conversion projects. The development stage is where the developers try to add maximum possible value to the property.

As the development stage nears its conclusion, the exit stage starts to take over the project. There usually exists no clear demarcation between the two. The exit stage involves finding new tenants, buyers or investors to book profits. This is where exit finance comes to the fore. Let’s consider a representative example to see how sales period funding really works.

Example

A property developer has undertaken a residential property development project. The finished project is expected to put 5 independent flats up for sale. The overall investment made in the project amounts to £900,000. This includes the acquisition price, contractor payments, taxes and miscellaneous expenses. The developer’s stake in this investment is 35%, while the rest is raised with the help of a development loan.

As the project approaches completion, the developer manages to find buyers for 2 units, while the remaining 3 fail to attract buyers. This is a rather tricky situation for the developer because the main Development Finance package cannot be paid back before the entire project is turned over. This means that the developer will have their equity stuck in a project that may take a while to generate profits.

This has twofold implications. Firstly, the developer has to bear the cost of having an expensive liability in the form of an unfinished project carrying Development Finance. Secondly, the developer has to forgo any other market opportunities that may come about, because of the unavailability of funds.

To deal with this situation, the developer decides to approach an external lender for an exit finance package. This package will help settle the existing development loan. In addition, the developer can offload some of his stake from the project. Eventually, the developer manages in securing a 2-year sales period funding at a cheaper interest rate than the original development loan, while also diluting their stake in the project to 20%.

Exit Finance – Who is it for?

Exit finance is a funding tool that can serve many purposes. However, most developers tend to make use of exit finance when the project stretches longer than they would have imagined, or unfavourable market conditions call for a late exit.

If you are a property developer or landlord, here’s what development exit finance can offer:

• Cheaper, more robust funding
• Financing for the ‘cold’ period
• Refinancing of the more expensive loans
• Diluting your stake in the project
• Maximising the overall profits by delaying the exit until the market conditions are favourable

Development Exit Finance Features

It’s clear that exit finance plays an important role in safeguarding development projects. The following features further define the utility of sales period funding:

• Flexible repayment period (6 months to 3 years)
• Exit finance available from £100,000
• High LTC (up to 75%)
• Relatively lower interest rates

Maximise the Profitability of Your Project with Customised Exit Finance

It may appear that securing suitable exit finance is a difficult task. This difficulty becomes even more apparent for projects that are impacted by delays. It shouldn’t, however, mean that the only way for you to exit the project is by booking hefty losses.

A well thought out and customised exit finance package can certainly help your cause. It is, however, not quite easy to secure such loans in the open lending market. Commercial Finance Network, being a trusted whole of market broker in the UK, solves this problem by contacting some of the top lenders in the industry on your behalf. Exit finance packages that we broker are always customised to meet your exact requirements.

Let us chalk out the best-fit exit strategy for your project with affordable sales period funding. Contact us today to speak to one of our Development Finance experts!