Commercial Development Finance

Commercial development finance is a short-term property development loan for building new commercial property or substantially redeveloping an existing site. The lender funds part of the land purchase on completion, then releases construction funding in stages as a monitoring surveyor confirms each phase of work. Interest is normally rolled up and repaid with the loan at the end of the term.

The loan is sized against the lower of a percentage of GDV and a percentage of total costs, so both your appraisal and your equity have to work. Repayment comes from selling the completed, let building to an investor, or from refinancing onto a commercial mortgage and holding it for the income.

• Site purchase: an initial advance against the land, with your equity in first
• Construction: staged drawdowns released against monitoring surveyor sign-off
• Letting: interest rolls up while agreements for lease complete
• Exit: sale to an investor or a refinance onto term debt repays the loan

Commercial development funding covers more than ground-up construction. Lenders group commercial property projects by type and risk, and the type decides the lender panel, leverage and pricing as much as the location does. Purpose-built student accommodation has a separate lender panel again, covered on our student accommodation development finance page.

Refurbishment projects sit between development and investment lending. Where the works are structural or change the building's use, lenders treat them as development and release funds in stages. Lighter works on a let building can suit refurbishment finance, which is usually quicker to arrange and sized on current value plus the cost of the works.

• Ground-up industrial, logistics and trade counter units
• Office, retail and roadside new builds, pre-let or speculative
• Purpose-built self-storage and other trading property
• Heavy refurbishment of dated offices and industrial buildings to a better EPC rating
• Redevelopment of an existing site, including demolition and rebuild

A signed agreement for lease with a credible tenant turns a construction risk into an investment. Lenders will lend more, price lower and accept a thinner equity cushion. The lease length, break clauses and tenant covenant all feed into what the valuer can put on the completed building.

Speculative commercial property projects are fundable, but the specialist lender panel shrinks and the terms tighten. Expect lower leverage, a higher margin and closer scrutiny of letting evidence when you apply. Multi-let industrial and trade counter units in established locations draw the most appetite. Speculative offices outside prime locations draw the least.

• Fully pre-let to a strong covenant: widest lender panel, best pricing
• Part pre-let or anchor tenant agreed: mid-market terms
• Speculative multi-let industrial: fundable with strong local letting evidence
• Speculative offices: limited appetite, equity-heavy structures

Commercial GDV is usually an investment valuation: the rent the building will produce, capitalised at the yield an investor would accept, less purchaser's costs. Half a point of yield movement can move the GDV by more than a typical build-cost saving, so test both.

On a speculative scheme the valuer also assumes a void before the first lease is signed, plus rent-free incentives to secure tenants. Both reduce the value. Run the income side through our rental yield calculator before you instruct a valuer. Self-storage and roadside trading sites are often valued on the profits method instead. Our guide to commercial property valuation methods explains each approach.

In England and Wales it's unlawful to let a non-domestic property with an EPC below E unless a valid exemption is registered. The government's June 2026 interim response proposes EPC B from 2031 for rented buildings over 1,000 sq m, so tenants and investors already ask about it.

A new building designed to current Building Regulations should clear today's minimum comfortably. The question your valuer and buyer will ask is whether it is future-proofed. Target the rating you'll need at the first rent review, not the one you need at practical completion. If you plan to hold, that rating also shapes the commercial mortgage you refinance onto.

New commercial construction is standard-rated, and the freehold sale of a commercial building within three years of completion is standard-rated too. Most developers opt to tax to recover input VAT. Get that decision documented before the first invoice arrives, as your cash flow depends on it.

An empty new building attracts business rates once the relief period ends: three months for most commercial property, six months for industrial. On a speculative scheme, empty rates, service charge shortfall and insurance during the letting void all belong in your appraisal and your facility term.

Commercial property finance designed for development has clear advantages over funding a scheme from cash or general business borrowing. It's still a significant commitment, so weigh the costs against the alternatives before choosing a structure, and test the appraisal with the facility fees included.

• Staged drawdowns: interest runs on funds drawn, not the whole facility from day one
• Rolled-up interest: no monthly payments from your business during the build
• Equity goes further: the same capital can support larger development projects
• Sized on the finished asset: the loan reflects completed value, not just today's site value
• A defined exit: repaid by a sale or a commercial mortgage, keeping long-term debt separate

Businesses building their own premises often look at business loans first. They rarely suit construction: amounts are limited, terms are short and there's no staged drawdown against the build. A development facility secured on the site is designed for the works, and an owner-occupier commercial mortgage can take over once the business moves in.

Bridging loans suit a different stage of commercial property development: buying a site quickly, holding land while planning is decided, or carrying a finished building while leases complete. Mixed schemes with flats above commercial units add another route, as the homes may refinance onto buy-to-let mortgages. Our mixed-use development finance page covers that structure.