For property developers with funds tied up in projects, liquidity can often become an issue. All businesses need cash to meet expenses and respond quickly to challenges or opportunities, but the long lifecycle of development projects means even developers with substantial equity may run into working capital shortfalls.
In todays challenging environment, more developers are experiencing disrupted cash flows, leading them to explore new sources of funding, whether to start their next project, settle a parcel of land or simply to pay creditors.
The cost of building a house has risen by over $75,000 in the past year and is still escalating, economists say. Materials and labour shortages are delaying builds, adding to developers’ risk and restricting their growth, while rising interest rates and construction prices are eroding their margins and profitability. This sudden price squeeze has caused many construction firms to collapse, and even Australia’s largest home builder Metricon was forced to seek an emergency cash injection recently.
For any property developer needing to free up cash flow or to restructure their capital base to reduce borrowing costs, an Equity Line of Credit can be a fast and cost-effective solution.
Unlike most other finance options for the property development industry, which often take the form of short-term, high-interest loans to fund specific projects, an Equity Line of Credit provides low-cost working capital to use as you see fit by releasing the equity in your real estate.
This may include unsold stock, your home, investment properties or other holdings, whether in single or multiple properties. Keeping equity tied up in these assets doing nothing is inefficient when you could be using it to further grow your business and project pipeline.
An Equity Line from Credit from Development Finance Partners (DFP) comes with approval times as short as 24 hours, settlement in as little as 5 days from application, high LVRs (up to 80%) and competitive interest rates.
With no onerous conditions such as minimum pre-sales requirements, it gives developers the financial flexibility they need to start and complete projects sooner, or to take full advantage of market movements by choosing when to sell or hold back stock. Other potential uses for an Equity Line of Credit include:
- Settle and hold land before construction
- Reduce the amount of cash you need to raise from other sources
- Replace existing development facilities with finance on more favourable terms
- Consolidate multiple existing debts
- Restructure your capital base while retaining ownership of all your assets
- Avoid having to sell down equity in projects
- Maximise your potential borrowings to take advantage of opportunities
- Avoid dipping into personal finances
- Have ready working capital on hand to use as you see fit
- Decrease portfolio risk by increasing diversification and increasing liquidity
If you think an Equity Line of Credit could benefit your business, contact DFP for more information or for a quick indicative proposal. We are industry-leading experts in funding and partnering with property developers, with over $3 billion in funding solutions settled nationwide.
Before recommending any finance solution, we consider a property developer’s overall requirements at both a project level and group level, and we tailor our solutions to suit each business’s needs based on our expertise in commercial property finance, property market trends and strategic advice.
Whether you’re looking to deliver upon an existing development pipeline or to minimise your overall cost of capital to improve your profitability, we can help with cash flow planning and advice on capital structuring to ensure that you achieve your business objectives.
We are also highly experienced in turning loss-making sites into fundable projects, and we can lead the way on workout strategies for troubled developments or act as your independent advocate in negotiation with current capital partners.
As well as an Equity Line of Credit, we provide the full suite of property development finance solutions including construction & development loans, land bank finance, mezzanine finance & residual stock loans.
Despite the construction sector’s current challenges, opportunities abound for well-funded developers who are in a position to take advantage of market conditions. Demand for residential stock is currently extremely high in many areas of Australia as rental vacancies reach record lows and a national housing shortage worsens.
DFP has the finance solutions, specialist knowledge and practical expertise to help you get your next project out of the ground quicker and more profitably.
To learn more, book a discovery call with the DFP finance team.
In a property developer's words:
"Essentially it saw a substantial amount of cash released to us that we could use as working capital, to progress on our next projects, or to use as we see is best for our company. It also lowered our ongoing interest expense considerably.
Having this cash in hand has strengthened us further as a property development business because it allowed us to pursue additional projects. Without the ‘line of credit' we would have been very restricted in what other opportunities we could pursue while waiting for our existing projects to complete.
This option is attractive for a property development business because traditional lenders are very reluctant to release cash directly to a borrower. Traditional lenders prefer to release funding in payment of an expense, but not as working capital where the borrower can use the cash freely.
As a development business, however, it is critical that we have the cash liquidity to operate and pursue new opportunities. It is also very inefficient as a business to have equity tied up doing nothing when there are ways we could be using that cash to further grow our company and our project pipeline. This loan product is absolutely something I plan to continue to use over time as I lead our business towards our goals. " - Carrick Developments, Brisbane QLD