Bridging loan for company directors to develop mixed-use property

Written by Peter Barnes

The clients: Four directors of a newly established SPV Ltd Co looking to break into property development. Each director is also in full-time employment all working in a managerial role. Between them, the directors own more than 10 rental properties.

None of the directors have any property development experience.

The property: The directors were looking to purchase a mixed-use property located on a busy high street in Kent. The property consists of three floors – a retail unit on the ground floor and two flats above. The directors were looking to convert the two flats above into four smaller self-contained units. The retail unit would continue trading with the same tenant.

The finance: They had originally planned to buy the property using development finance, but this was not possible because planning permission was not in place and the schedule of costs had yet to be finalised.

Promising the vendor they would complete within 26 days of putting in their offer, the directors decided they would need to go down the short-term finance route if they were to be successful with the purchase.

Not wanting to repay the short-term finance in monthly instalments, the directors requested we source finance from a lender which would roll up the interest and accept one bulk repayment on exit.

The application process: We took the case to a specialist short-term lender, which is renowned for having an excellent turnaround time. We explained how the directors would repay the loan and happy with the exit strategy they agreed to consider the case.
The chosen lender asked for the following documentation to support the application:

• Proof of ID for all directors
• Proof of address for all directors
• Background history as landlords, including property portfolio spreadsheets
• Exit strategy details and project plans including projected GDV

We then worked with the directors to complete the application form and submitted it together with the supporting documents on their behalf. As expected, the funds were released within 25 days.

With Planning permission has since been granted and we are now working with the directors to secure development finance.

Here are the details of the bridging deal:

Property Details

Property value: £450,000

Loan amount: £247,000

Proposed GDV after development: £1,250,000

LTV: 55%

Rate: 0.95% pcm

Term: 4 months

Lender facility fee: 2% of loan amount (£4,940 added to loan)

Lender exit fee: Nil

Monthly payment: Nil (rolled up with interest at end of loan term)

Consultant: Peter Barnes, 01732 471641