What are they?
Property development grants can help businesses who want to carry out residential or commercial property development or renovation activities. There are also major government backed low interest rate loans available in this sector, such as the Home Building Fund.
A property development funding injection can help businesses carry out their property development activities faster or undertake larger projects than if they were relying on their existing financial resources. More often than not these property development funds come from a Government source or from local authorities, where in many cases they have an interest in refurbishing properties of historic interest.
What do they pay for?
Businesses may seek grants to pay towards a range of different property development activities, which are briefly outlined below.
- Building Residential Properties – Get funding towards building new housing and apartment development projects
- Residential Property Renovation – Get funding to upgrade old or empty housing or convert premises to be suitable for residential living
- Building Commercial Properties – Get funding towards building commercial premises, such as retail, office, factory or warehousing space
- Commercial Property Renovation – Get funding to upgrade old or empty commercial premises to be repurposed for new business activities. Specific types include shop front improvement and heritage building repair works
- Property Safety – Get funding to ensure properties have the appropriate fire safety measures or help reduce flood risk
- Stalled Site Development – Get funding to kickstart a property development activity that has previously been halted due to ongoing issues
What type of alternative funding is available for property development?
If businesses cannot readily access a grant in their sector or region that fits their needs, then the alternative is to take on property development loans, which can typically be accessed from private commercial lenders.
There are a number of different property development loan products available:
- Property Development Loans – A standard loan that can be taken out to carry out either building or refurbishment activities at a specific site
- Bridging Loans – A short term loan to develop or refurbish a new premises whilst waiting for the sale of an old property or other funding to come in
- Buy-to-let Mortgage – A mortgage specifically aimed at buying a property to then renovate and make available for rental
- Buy-to-sell Mortgage – A mortgage specifically aimed at buying a property to renovate and then sell on
- Commercial Mortgage – A loan available towards acquiring and developing commercial premises, such as a shop, factory or office
- Renovation Finance – Specialist loans for renovating residential or commercial premises
What are the pros and cons of a loan vs a grant?
Grants – What are the Pros and Cons?
Advantages of taking a grant
- Grant funding is non repayable and means there is no pressure on business cash flow moving forward compared with repaying loans and their associated interest.
- Grant funding typically targets specific areas of property development, or give you a favourable incentive to carry out projects in an underdeveloped or dilapidated area. They can also allow you to address particular issues, such as safety measures relating to fire hazards, unsafe cladding, flood protection or repairs from flood damage.
- If you are awarded a grant from a government backed scheme or enterprise support body, this is considered a vote of confidence from the awarding body in question and means they have backed your business proposition as one that is highly likely to succeed. Details of your receiving an award is often publicised in local press or trade publications and this can be used as a promotional tool to secure new business.
Disadvantages of taking a grant
- Grants usually only offer a percentage of total funding needed for a project, so in some cases you may need to cover any additional development costs with a business’ own cash or an alternative private finance source. In many cases in the UK match funding of 50% is typical.
- Access to grants is highly competitive. As the money is free you will be competing against other businesses and will need to stand out from the rest of the applicants to be awarded funding.
- Grant funding pots are often restricted to specific sectors or regions, so it means if you do not operate within that sector or geographic region then you are not able to access the funding. Some areas and sectors have less funding than others. Some funding may only be available for brownfield site development and some funding may only be available to refurbish older heritage buildings.
- Grants often come with terms and conditions and restrictions, which means you are only allowed to spend the money on what you specifically applied for. Evidence must be provided to show where the money has gone and sometimes the grant is only released as a reimbursement after the project has been completed.
- It is harder for less established SMEs to access money from grants. More often than not a business needs a track record to prove they will make good use of the money and not see the project or their business fail.
Loans – What are the Pros and Cons?
Advantages of taking a loan
- Loans will typically cover your entire property development costs meaning you will not need to seek additional funding from elsewhere.
- Loan funding is flexible and can be used for any property development or refurbishment activities and there are typically no restrictions on what areas you may spend the money on that would otherwise be restricted if you were using a grant.
- Loans are not limited by sector and means that certain businesses traditionally excluded from grant opportunities can more easily access this type of finance.
Disadvantages of taking a loan
- Whenever you borrow a loan or take out a mortgage, you must always pay that money back over a period of time with interest (where applicable) and this can put a strain on business cash flow in the future if trading conditions become tough.
- There are some cases where interest rates for less established businesses can be higher due to the greater level of risk and unsecured nature of the loans for those without a proven track record. Businesses with a good relationship with their bank can typically negotiate to get a better interest rate.
- If you are trying to seek a loan when your business is already facing financial difficulties, there is a chance that you may be refused a loan if your business is deemed too high a level of risk. Access to traditional commercial loans can also “dry up” when there are difficult economic conditions taking place across the UK.
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