What it is
The development loan is short-term finance, 12 to 36 months, granted by a bank to a developer to fund the delivery of a construction operation. It covers the period from opening the site to handover and repayment through off-plan sales or the rent from an institutional buyer.
Its structure is fundamentally different from a classic mortgage: the funds are made available as a credit line the developer draws progressively as the works advance, in step with the contractors' payment applications.
The structure of the loan
| Amount | Generally 60 to 80 % of the total cost, the loan-to-value ratio |
|---|---|
| Term | 12 to 36 months, aligned with the delivery and sales programme |
| Rate | Variable, indexed to the three-month interbank rate plus a bank margin of 1.5 to 3.5 % according to the file |
| Drawdown | Progressive, on presentation of payment applications endorsed by the design team |
| Repayment | At maturity: the capital repaid in one instalment at the end of the operation |
| Ancillary costs | Arrangement fees of 0.5–1 %, a commitment fee on the undrawn capital, guarantee costs |
The conditions of obtaining it
Pre-sales: the determining criterion
The most important condition is the level of pre-sales at the time of the application. Banks generally require 40 to 50 % of anticipated turnover to be secured by reservation contracts or signed off-plan sales before granting the finance.
ℹ Why pre-sales matter so much The development loan has no real security other than the operation itself. If the developer does not sell, it cannot repay the bank. Pre-sales are the proof that a market exists for the project.
Equity
Banks require the developer to contribute at least 10 to 20 % of the total cost in equity. That contribution reduces the loan and demonstrates the operator's commitment.
Balance sheet strength and experience
Banks analyse the accounts of the carrying company and the director's track record: operations delivered, absence of major damage or litigation, the capacity to run an operation on time and on budget.
The quality of the appraisal
The appraisal presented must show a sufficient margin, at least 8 % of turnover. Too tight an appraisal will lead to refusal or to very restrictive conditions.
The costs
| Interest | Calculated on the amounts drawn. With an interbank rate of 3.5 % plus a margin of 2 %, that is 5.5 % a year on the funds drawn. |
|---|---|
| Arrangement fees | 0.5 to 1 % of the total, payable on setting up the facility. |
| Commitment fee | 0.3 to 0.5 % a year on the undrawn portion, paying for the availability of the funds. |
| The completion guarantee | 0.5 to 1.5 % of the works. Mandatory to protect off-plan buyers. |
How to minimise the costs
- Raise the level of pre-sales before starting, to reassure the bank and accelerate repayment.
- Optimise the construction programme to shorten the drawdown period.
- Put several institutions in competition to negotiate the margin.
- Use crowdfunding alongside to increase the equity share.
Related articles: Financing a property project · Property crowdfunding
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The rates and conditions are indicative for the French market. They vary between institutions and operator profiles.
The nature of the figures quoted
The percentages and amounts quoted on this page are orders of magnitude for framing, not measurements. They illustrate mechanisms and proportions, and they substitute neither for a tender exercise nor for an estimate prepared on drawings.
Sources: the BT construction cost indices published monthly by INSEE on its 2010 base, used to update the figures · construction cost statistics from SDES, the statistical service of the ministry responsible for construction · regulatory texts published in the Journal officiel and consolidated on Légifrance for the requirements cited.