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What is stretched senior development finance?

Following the banking crisis of 2008, banks stopped lending senior debt development finance leaving a funding vacuum in the housing development market. Private funds and investors came into the market to assist with senior debt, mezzanine and equity portions of loans and ‘stretched senior debt’ became increasingly seen as the best way to maximise loan gearing levels whilst minimising the equity required of property developers; this in turn allowed property developers to take on more projects. In essence, it is a senior debt development loan that is more highly geared than traditional senior finance and minimises the need for mezzanine and lowers the borrowers equity input.

Why is stretched senior development finance attractive?

Where banks had traditionally been relatively aggressive with their lending in the past, even when they came back into the market they remained at around 65% loan to cost, meaning the majority of small and medium sized house builders sought alternative funding sources. Companies, such as Imperial Blue, came into the senior debt development finance market with the ability to lend up to 90% of total project costs, and up to 75% of gross development value, to experienced property developers across the UK. Whereas banks, therefore, expect developers to put in, on average, 35% of total project costs, Imperial Blue and other lenders require 10-20% of total project costs.

Further benefits of stretched senior development finance for developers

These privately funded stretched senior development finance loans come with further benefits for property developers in that as they are typically privately funded, the process is significantly quicker. Terms are issued more quickly, the credit process is more efficient and streamlined and there is typically more flexibility. Overall, stretched senior development loans offer highly efficient, highly leveraged loan solutions for developers who wish to aid their cash flow, minimise their own equity input and maximise their own returns.