A couple, farmers by profession, faced a financial challenge as they ventured into property development. Their 20-acre poultry farm presented a unique opportunity as they divided the land into 10 development plots with an estimated GDV of £5.2m.
The property is set to feature a mix of 2, 3, and 4-bedroom detached properties with an anticipated sale price ranging from £300,000 to £700,000.
However, the project faced a significant setback when the original builder abandoned the site, resulting in a 5-month delay and financial losses. This unexpected delay caused the completion of the first half of the development to surpass the initial 12-month schedule.
The couple had exhausted their savings to complete the first 5 plots, leading to a default on their original loan and a subsequent increase in interest rates. A lack of confidence in the new developer led to the initial finance company being reluctant to continue funding the remaining developments. The family farm urgently needed to refinance to keep the project afloat.
The total property estate value was at £1.2 million in its current state (4 plots completed, 1 almost finished), and the total finance requirement was £700,000 to refinance the defaulted loan and to complete the remaining development - equating to a loan-to-value (LTV) ratio of 65%.
As 4 of the 5 plots were already on the market, the bridge finance would be repaid once the properties had been sold. The couple would then use the remaining proceeds from these plots to fund the rest of the development.
An urgent bridging loan can provide various benefits in certain financial situations where quick access to funds is essential.
Quick access to funds: The primary advantage of a bridging loan is the speed at which funds can be accessed. Traditional loans may take longer to process, and urgent situations often require a faster response.
Flexibility: Bridge loans are versatile and can be used for various purposes such as property purchases, home renovations, or meeting business needs. The flexibility of use makes them suitable for a range of scenarios.
Temporary financing: Bridging finance is short-term in nature, usually ranging from a few weeks to a few months. This makes them ideal for situations where you only need temporary financing until a more permanent funding source becomes available.
Understanding the urgency and complexity of the situation, the farmers sought assistance to secure bridging finance within an eight-week time frame.
- Refinancing with bridge loan: The bridging finance would be secured against the poultry farm development, covering the outstanding debts and the additional funds needed.
- Anticipated sales of future developments: With planning on the remaining plots, the expected sales of the developed properties would provide sufficient collateral.
By implementing this strategy, the farmers secured the bridging finance within the tight time frame.
The exit strategy addressed the immediate financial needs and set the stage for completing the entire poultry farm development project.
This illustrates the importance of sourcing innovative lending partners when navigating challenges in property development.