Here at Signature Property Finance, we aim to offer a diverse range of short-term property finance products, tailored to various stages of property development, from acquisition with a bridging loan to improvement with refurbishment loans.
Whilst there is an increasing awareness among brokers and their clients about the benefits of bridging finance as a tool, the advantages of a revolving credit facility remain less widely recognised.
Revolving credit facilities are provided by lenders for numerous purposes, covering everything from helping developers manage their cash flow effectively to funding new property purchases at short notice.
Below, we explore the application of a revolving credit facility within the context of short-term property finance. Given the opportunities in the property sector in the coming months, we will explain why such a facility should be considered by property developers and investors.
Why is it called a revolving credit facility?
Consider a revolving credit facility like you would a revolving door, offering flexible entry and exit options, rather than a fidget spinner, which merely rotates without purpose.
Our product is designed to meet the needs of professional investors and developers, recognising that they have to act swiftly to seize property opportunities, without the delays typically associated with other property development loans, such as bridging or refurbishment.
A revolving credit facility gives the borrower access to a predetermined amount of funding with the flexibility to draw down, repay and redraw loans as needed. The loan is secured against a pool of assets that are provided to the lender at the outset of the transaction. If our clients operate within the terms of the loan satisfactorily, there is minimal further involvement from us, the lender.
This facility distinguishes itself from a traditional bridging facility in that funds can be repaid and redrawn throughout the loan term, with the borrower only paying interest on the drawn balances.
It is important to understand that with a revolving credit facility, the only valuation we require is on the properties offered as collateral at the start of the loan, not on any new properties the borrower intends to purchase or develop, which removes a major source of delay.
Real world use scenario
For purchasing properties at auction, a property developer needs fast, easy access to funds, with minimal involvement from lenders. A revolving credit facility, allows them to access funds quickly, having already demonstrated their creditworthiness during the facility’s initial application and implementation.
This facility also enables developers to purchase properties requiring refurbishment, confident that they have the necessary funds to complete the project, all within a single fund, eliminating the need for further applications at each stage of the process.
How it works
When assessing a business or an individual seeking a revolving credit facility, we examine all aspects of their activities. Our primary consideration are the collateral properties, (e.g., loan-to-value ratio, suitability as security and ability to take a marketable title).
The balance on a revolving credit facility may fluctuate between zero and the maximum approved loan as the developer or investor uses the funds to unlock property potential. We charge an initial arrangement fee and a fixed interest rate on the loan balance, which may be higher than some of our other property finance products to reflect the flexibility the facility affords the borrower, as well as the cost to lender of administering of such a facility.
A straightforward application is required for each drawdown request, with funds released within 48 hours of submission. The maximum term for our revolving credit facility is 12 months, but this can be extended relatively easily, if clients comply with the loan terms satisfactorily throughout the year.
We are beginning to see many accidental and amateur developers and investors leaving the market, thanks to the evolving regulatory and interest rate environment and difficulty in achieving cost-effective buy-to-let loans, which have combined to make the prospect of being a private landlord far less desirable.
Against this backdrop, the flexibility offered by a revolving credit facility is particularly appealing to professional property developers and investors, who are adept at managing their funds and typically have ambitious plans to expand their portfolios.
We are confident that Signature Property Finance is well-positioned to support these ambitions with a range of products that align with developers’ needs, recognising the need for speed and efficiency in the deal process. If you want to know more, please get in touch today.