The Role of Development Exit Finance for Property Developers

Development exit finance is a specialised financial product designed to help property developers bridge the gap between completing a project and selling or refinancing it. It offers flexibility and often provides developers with more favourable terms than traditional development loans, particularly when a project nears completion but hasn’t yet been sold or refinanced. Here’s a breakdown of how development exit finance works and why it's a critical tool for developers seeking smooth project exits.

What Is Development Exit Finance?

Development exit finance is a type of short-term loan aimed at replacing an existing development loan after a project has reached practical completion. Developers use this to:

• Refinance existing loans, typically at a lower interest rate.

• Free up capital that may be tied up in the project, allowing the developer to reinvest in new opportunities or cover other costs.

This financial solution is especially useful when the project has not yet sold or when the developer anticipates a delay in selling units within the development.

How Does Development Exit Finance Work?

Here's a simple overview of how it works:

1. Completion of the Development: The developer finishes the construction of a property but still has an outstanding loan from the development phase.

2. Refinance with Development Exit Loan: The developer refinances this loan with a lower-rate exit finance product, which typically offers more favourable terms compared to the original development finance.

3. Repayment Flexibility: The exit finance allows the developer time to sell off units or refinance with a more permanent funding solution, without the pressure of high-interest rates or looming deadlines.

By securing development exit finance, a developer can potentially reduce monthly costs and avoid the risks associated with delays in the sale of completed units.

Benefits of Development Exit Finance for Developers

1. Lower Interest Rates: Compared to standard development loans, development exit finance typically comes with lower interest rates. This reduces the financial burden on developers who are nearing the final stages of their project.

2. Increased Flexibility: It provides developers with more time to sell the completed properties, allowing them to focus on getting the best possible sale prices instead of rushing to avoid penalties from lenders.

3. Releasing Capital: Exit finance can help release equity tied up in the development, freeing up cash flow to invest in other projects or cover ongoing business expenses.

4. Smooth Transition to Long-Term Finance: Development exit finance can serve as a bridge before transitioning to more permanent or long-term financing solutions such as buy-to-let mortgages or commercial loans.

5. Improved Credibility: Securing exit finance can improve a developer's reputation with lenders, showing they have a proactive exit strategy in place. This could make it easier to obtain funding for future projects.

When Should Developers Consider Development Exit Finance?

Development exit finance can be an ideal solution for developers in the following scenarios:

• Delays in selling completed units: If the property market is slow or developers are holding out for better offers, exit finance buys extra time.

• Pending property sales: When the sale process is in progress but hasn’t been completed, and the original development loan term is coming to an end.

• Need for liquidity: Developers looking to release equity from the completed development to reinvest in new opportunities may benefit from exit finance.

• Refinancing at better terms: If a developer can access a lower interest rate by switching to development exit finance, it can significantly improve cash flow and profitability.

Key Takeaways for Developers

• Development exit finance is a flexible tool for refinancing existing loans on completed projects.

• It allows developers to access better rates, freeing up capital and extending the time to finalise property sales.

• Developers should consider this financing option when they face delays in selling or need to release equity from completed projects.

By effectively managing their cash flow and leveraging exit strategies for developers, property developers can maximise their return on investment and maintain business momentum. For developers seeking flexibility, development exit finance offers a streamlined solution, helping them bridge the gap from project completion to financial success.

For more information on development exit finance or to explore tailored solutions, LivFinance provides a range of bespoke products to meet your property development needs. Reach out today to discuss how we can help you find the right exit strategy for your projects!