Credit History and Development Finance: Can You Borrow With Bad Credit

Development finance lenders assess credit history differently from mainstream mortgage lenders. While a high-street bank will typically apply rigid credit scoring criteria that automatically decline applicants with certain adverse credit markers, specialist development finance lenders take a more nuanced, case-by-case approach. The fundamental question they ask is not whether your credit file is perfect, but whether the credit issues in your history represent an ongoing risk to the project. A single missed payment on a £3,000 credit card three years ago is viewed very differently from an undischarged bankruptcy or an active county court judgment.

In our experience arranging development finance for hundreds of borrowers each year, approximately 15-20% of applicants have some form of adverse credit on their record. Of these, the majority are still able to secure finance, albeit sometimes at higher rates or with additional conditions. The key factors that determine the impact of adverse credit on your application are the nature of the adverse event, how long ago it occurred, the amount involved, whether it has been satisfied or remains outstanding, and whether there is a reasonable explanation for what happened.

It is important to understand that development finance is fundamentally asset-backed lending. The lender is primarily secured against the development site and the completed property, not against your personal creditworthiness. This means that the strength of the deal itself, including the site, the planning permission, the projected GDV, and the profit margin, carries more weight than your personal credit score. A strong deal with a borrower who has historic credit issues will often be funded ahead of a marginal deal with a borrower who has a clean credit file. That said, credit history is never irrelevant, and understanding how it is assessed allows you to present your application in the strongest possible light.

Late payments and defaults on credit agreements are the most common form of adverse credit. A single late payment more than two years old will have minimal impact on most development finance applications. Multiple late payments or defaults within the last twelve months are more concerning, particularly if they relate to mortgage or business finance commitments, as these suggest ongoing financial difficulty. Lenders will typically want an explanation and evidence that the circumstances have been resolved.

County court judgments represent a more significant issue. A satisfied CCJ of less than £5,000 that is more than two years old can usually be worked around with specialist lenders. Unsatisfied CCJs, multiple CCJs, or judgments for larger amounts will restrict your options significantly and will typically add 1-3% to the interest rate compared to a clean credit application. In our experience, satisfying outstanding CCJs before applying for development finance is almost always worthwhile, both because it opens up more lender options and because it removes a negotiation point that otherwise works against you.

Individual voluntary arrangements and bankruptcy are the most severe forms of adverse credit. If you are currently subject to an IVA or are an undischarged bankrupt, development finance in your personal name is effectively unavailable. However, if the IVA has been completed or the bankruptcy has been discharged, some specialist lenders will consider applications, typically after a minimum of three years from the date of discharge. The interest rate premium for post-bankruptcy borrowers is substantial, usually 3-5% above standard rates, and maximum leverage is typically capped at 55-60% of GDV. Despite these constraints, we have successfully arranged facilities for developers with historic insolvency, demonstrating that it is not an absolute barrier to funding.

The most effective strategy is transparency. Disclose your credit history upfront in your application, provide a clear explanation of what happened and why, and show evidence that the circumstances have been resolved. Lenders dislike surprises. If adverse credit emerges during the credit search after you have been through several weeks of the application process, it creates a trust issue that is difficult to overcome. By contrast, a borrower who says from the outset that they have a historic CCJ, explains the circumstances, and shows it has been satisfied demonstrates honesty and self-awareness that lenders respect.

Strengthening other aspects of your application can offset the impact of adverse credit. Bringing more equity to the deal is the most direct way to compensate. If the standard equity requirement for your scheme is 30%, offering 40% reduces the lender’s exposure and demonstrates financial commitment. Appointing an experienced contractor with a strong track record, providing three rather than two contractor tenders, and presenting an institutional-quality development appraisal all contribute to building lender confidence. The goal is to make the deal so strong that the adverse credit becomes a footnote rather than the headline.

Consider the borrowing structure. If you have adverse credit but your business partner or co-director does not, the application may be strengthened by having the partner with the cleaner credit history take the lead role. If the adverse credit relates to personal financial issues rather than business conduct, borrowing through a special purpose vehicle rather than in your personal name may help, although personal guarantees will still usually be required. We work with clients to find the structure that presents the application in the best possible light while remaining fully transparent with lenders. For a complete overview of what lenders require, see our application checklist.

The development finance market can be broadly divided into three tiers based on their approach to adverse credit. High-street banks and major challenger banks form the first tier and generally require clean credit files with no material adverse markers. These lenders offer the most competitive rates, typically 6.5-8.5% per annum on facilities from £500,000 to £20,000,000, but their credit criteria are the most restrictive. If you have any significant adverse credit in the last three to six years, these lenders are unlikely to be an option.

Specialist development finance lenders and non-bank lending platforms form the second tier. This group includes firms that specifically cater to borrowers with imperfect credit histories and assess applications on a case-by-case basis. Rates from these lenders typically range from 9-14% per annum depending on the severity of the adverse credit and the strength of the overall deal. Arrangement fees may be higher, typically 2-2.5% compared to 1.5-2% from first-tier lenders. Despite the higher costs, these lenders provide a genuine route to finance that would otherwise be unavailable, and the additional cost is often justified by the profit potential of the development.

Private credit funds and family offices form the third tier. These lenders have the most flexible credit criteria and will consider almost any credit history provided the deal itself is strong and the equity contribution is substantial. Rates from this tier can range from 12-18% per annum, and leverage is typically limited to 50-60% of GDV. While expensive, these lenders serve an important role in the market by funding deals that cannot be placed elsewhere. We maintain relationships with lenders across all three tiers, which allows us to match each client with the lender that offers the best available terms for their specific circumstances. Submit your details through our deal room for a confidential assessment.

If your development timeline allows, taking steps to improve your credit position before applying for finance can significantly improve your terms. Start by obtaining copies of your credit reports from all three main credit reference agencies: Experian, Equifax, and TransUnion. Review each report carefully for errors, as incorrect information is more common than most people realise. Dispute any inaccuracies formally through the credit reference agency, as having incorrect adverse markers removed can make an immediate difference to your application.

Satisfy any outstanding CCJs or defaults before applying. A satisfied CCJ is viewed much more favourably than an unsatisfied one, and the cost of settlement is usually modest, often £2,000 to £10,000, relative to the savings you will make on your development finance terms. If you have outstanding debts that are not yet the subject of CCJs, consider settling them to prevent further adverse markers appearing on your file during the finance application process. A new CCJ registered while your application is being processed would be particularly damaging.

Build a positive credit footprint in the months before applying. Ensure you are on the electoral roll at your current address, maintain all existing credit commitments in good order with no late payments, and avoid making multiple credit applications in a short period, as this creates a pattern of credit searches that can suggest financial distress. If possible, allow at least six months between resolving any adverse credit issues and submitting your development finance application, as this gives the improvements time to be reflected in your credit file and demonstrates a sustained period of financial stability.

Personal guarantees are standard in development finance, but they take on additional significance when the borrower has adverse credit. A personal guarantee means that if the development company cannot repay the loan, the guarantor becomes personally liable for the debt. For borrowers with clean credit, the personal guarantee is often a formality. For borrowers with adverse credit, lenders may impose additional conditions on the guarantee, such as requiring it to be supported by specific charged assets like a residential property or requiring the guarantee to be unlimited rather than capped at a percentage of the facility.

If you have adverse credit and are asked to provide a personal guarantee supported by a charge over your home, consider the implications carefully. While this level of security may be necessary to access the finance you need, it means your personal residence is at risk if the development encounters serious problems. We always recommend that borrowers in this position take independent legal advice on the guarantee terms and ensure they are comfortable with the downside risk before proceeding. In some cases, it may be possible to negotiate alternative security arrangements, such as a cash deposit held in an escrow account, that protect your primary residence while still satisfying the lender’s security requirements.

Where the development is being undertaken as a joint venture or partnership, adverse credit on one party may be mitigated by the clean credit and financial strength of the other. Some lenders will accept a personal guarantee from the partner with the stronger financial position, reducing the reliance on the party with adverse credit. This is one of several structuring options that can help navigate the challenges of adverse credit, and it highlights the value of working with an experienced broker who understands the nuances of each lender’s credit appetite. Read our guide on joint borrower development finance for more on partnership structures.