Every project will look somewhat different, so there isn't a predetermined number of steps.
For example, if you use development finance for a small-scale renovation, you might draw down all of the facility in one lump sum when the work begins.
More typically, you'll be using financing for a more significant extension, renovation or build, and so your tranches might be split as follows:
- When the agreement completes, you'll receive the first drawdown. If you are applying for financing to purchase a property or parcel of land, phase one will include this.
- Phase One completes - laying foundations, finishing groundworks and securing the site. Once the inspector has visited and confirmed the work is complete, the next batch of funding is released.
- Next, Phase Two could be the construction of the building shell, including timbers for the roof - again, a valuation visit is required before the lender signs off to release funding tranche three.
- The third phase might be to make the property watertight, including glazing, roofing and doors. Finally, once the internal fit-out is complete, the final funding is forwarded to the borrower.
Note that in some cases, the funding is retrospective. In that scenario, you'd need to finance the work out of pocket and then receive a drawdown when the lender has inspected progress and is happy to release the next tranche.
Some developments are substantially more complex, and there may be multiple phases. Others will be simpler with just one or two tranches of funding, so this is a rough indication rather than a standard procedure.
Since you only pay interest on the funds in use, it is ideal to avoid drawing down any more than you need for your current development work to ensure you aren't paying more interest than necessary.
When your development is complete, and all funds have been released, you will begin paying interest on 100% of the development finance facility, usually charged monthly.
At this point, the priority is to kick in your exit strategy to repay the development finance as quickly as possible.
Usually, that means appointing an independent valuer and applying to remortgage the finished work on the appropriate type of mortgage and/or listing the property on the market.
