There are lots of types of equity financing used across loads of different asset classes, but for the purposes of this blog, we’ll be specifically looking at equity funding for property development.
We’ll break down what equity funding means in the context of development finance, the benefits of this funding option, and how LandFund helps make the whole process easier.
What is equity funding?
Property development equity funding is a financing option used by developers to fund their projects.
There are lots of ways an equity funding deal can be structured. Most commonly, the lender will provide capital in exchange for an agreed share of stock or profits from the development. Then you’ll need to agree on the percentage of profit share, the interest rate associated with the equity model, and the timeframe for repayment. However, sometimes there is only a profit share or only a rate that needs to be agreed on.
Once the development has been built and sold, the profit will be shared out between yourself and the equity funder according to the terms you agreed.
How does equity funding compare to other development finance options?
Property equity funding differs from other funding options as the risk is shared between the lender and the developer, as the lender’s ROI is directly tied to the success of the project.
In many ways, this is a benefit as the burden of risk is split and the developer can have smaller upfront capital requirements. However, some developers can be wary of relinquishing any control over their project to their equity funders.
Combine this with the fact that there are fewer equity funders on the market (than say those offering debt), you need to do your due diligence and ensure you’re working with a trusted partner.
The type of funding that you chose to finance your project often depends on your upfront capital, risk appetite, and timeframes.
How to raise equity funding for your project?
Typically, the process of securing any type of funding for your project is arduous. Particularly, if you’re new to the development world and don’t have a network of trusted lenders to call on.
Furthermore, not every lender will provide equity funding for property development in the UK, so you have to do your research to find lenders who offer what you need at favourable terms.
It can be a pretty time-consuming process, which is why a lot of developers work with a broker to access their contacts.
At LandFund, we’ve taken this one step further and have combined our years of industry knowledge and trusted reputation to provide a truly tailored brokerage service.
How can LandFund help?
LandFund is the development finance arm of our product ecosystem. With LandFund, you can create accurate appraisals in a few simple clicks and facilitate the perfect funding match for your project.
Not only do we have experienced funding partners who can offer equity finance options to suit your needs, but you can now model equity finance from within our appraisal tool too.
This means you’ll be able to get a more comprehensive picture of the potential returns of your project and a better evaluation of how different parts of your deal structure are working together.
And that’s not all, we’re looking to add further functionality within the near future – building equity into the cashflow feature and allowing you to calculate more complex interest arrangements.
Interested in getting equity funding?
Talk to a member of the team today about our different funding options and how you can use our appraisal tool to accurately model the finances of your project.
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