Staged Drawdown Development Finance: how the money actually flows

Development finance arrives in stages, released behind work you have already paid for. That one sentence contains the single largest cash flow problem in property development, and it is the one developers are least prepared for.

Everybody understands that the lender funds the build. Fewer appreciate that you fund it first and the lender reimburses you, and almost nobody arrives with a number for how much cash that requires at any given moment. This page gives you that number, explains what delays a release and by how long, and sets out how to structure the schedule so the arrears gap costs you as little as possible.

The five step cycle, the two to three week turnaround and the principle that the surveyor certifies value rather than your claim are covered on our development finance page. This page goes underneath them.

The arrears gap, in numbers

Take the scheme used across this cluster: total cost £1,100,000, made up of £400,000 of land and £700,000 of build and professional fees, over a 15 month build. The facility is £990,000 at 90% of cost, with the developer's £110,000 going in first against the land, which is what most facility agreements require.

The lender then funds the £700,000 of build and fees, in arrears. That is £46,667 a month that you pay out and then claim back, or £10,769 a week.

Month by month, with a six week claim to cash cycle

At each month end you are £70,000 out of pocket, continuously from month 2 to month 16. That is £70,000 over and above the £110,000 of equity already committed to the land.

But the month-end figure is not the number to budget

A month end is a snapshot, and your overdraft does not only exist on the last day of the month. Between the day you submit a claim and the day the cash lands, you carry on paying the contractor, so the balance climbs well above £70,000 before each receipt brings it back down.

Run the same scheme week by week rather than month by month and the true peak is £96,923. That is the figure to have available, because running out in week three of a month is still running out.

So there are two numbers and they are both real:

A developer who budgeted £110,000 of equity and arrived with £110,000 runs out in month one. A developer who read the month-end figure and put aside £70,000 runs out in month two.

The formula

Peak working capital = your weekly build spend × (weeks between claims + weeks from claim to cash − 1).

On monthly claims with a six week cycle that is 4 + 6 − 1 = nine weeks of build spend. At £10,769 a week, £96,923.

Use it on any scheme. A £2m build over 20 months is £23,077 a week, so monthly claims on a six week cycle need £208,000 available. Get the cycle down to four weeks and the same scheme needs £162,000.

Budget above the steady state for the first cycle. The opening claim is almost always slower than the rest, because the initial monitoring surveyor report has to be produced before anything is released and the lender's processes are being used for the first time. Add three weeks to the first cycle and you need around £129,000 on this scheme, settling back to £96,923 once it is running.

Frequency: the trade-off nobody quantifies

The usual advice is to take fewer, larger drawdowns, because monitoring fees are charged per visit. That advice is incomplete, and following it blindly is expensive.

Same scheme, three drawdown structures, with monitoring at £1,500 for the initial report and £650 per interim visit:

Moving from monthly to quarterly saves £7,150 in monitoring fees and costs you £96,923 more in working capital. It is the same number twice over, which makes the point neatly: the cash you tie up by claiming less often is thirteen times the fee you save.

Unless that cash genuinely has nothing else to do, monthly drawdowns are the better structure on almost any scheme.

And speed beats frequency

The same comparison with a three week cycle instead of six:

Halving the cycle on monthly claims releases £32,308, which is four and a half times the entire monitoring saving from going quarterly. Effort spent getting paid faster is worth considerably more than effort spent claiming less often, and the rest of this page is largely about how to do that.

How to structure the schedule at the outset

Set this at term sheet stage, because it is far harder to change once the facility documents are drafted.

Monthly valuation dates, not stage based, where you have the choice. Stage based releases — foundations, superstructure, roof, first fix, second fix — sound logical and produce lumpy cash flow. A stage that takes eleven weeks means eleven weeks of spending with nothing coming back. Monthly releases against measured work smooth it out.

Ask for a specific valuation date each month, for example the last Friday, and get it into the facility agreement. A fixed date lets you book the surveyor in advance and lets your contractor align their applications with it.

Check the minimum drawdown value. Most lenders set one, commonly £25,000, and one on our index requires £20,000 or 20% of build cost, whichever is greater. On a scheme spending £46,667 a month that is not a constraint. On a smaller scheme it forces you into less frequent claims whether you want them or not, so model the working capital consequence before you accept a high minimum.

Check the maximum number of drawdowns. Lenders commonly cap them, with examples on our index at three, four and five releases. A five drawdown cap on a 15 month build is a quarterly cycle whether you asked for one or not, and on the table above that is nearly £100,000 of extra cash you have to find. This is the single term on the schedule worth negotiating hardest.

Agree who instructs the surveyor, and how. A facility where you can contact the monitoring surveyor directly to book the visit is materially faster than one where every request routes through the lender. At least one lender on our index lets developers deal with the surveyor directly and makes no internal charge for reviewing the claim. That is worth real money.

Agree the claim format up front. Ask the surveyor, before the first claim, exactly what they want to see and in what layout. Getting the format right from claim one removes the most common cause of a rejected first claim.

Materials on site

This is the most useful concession in staged lending and it is rarely volunteered.

What it is. Most lenders release only against work incorporated into the building. Some will also release against materials delivered to site but not yet installed. On a scheme where you have just taken delivery of £60,000 of windows, that is the difference between being reimbursed this month and next.

How much. Where it is offered, expect 50% to 100% of the invoice value of the materials, with the lower end more common on the first occasion.

What they will want to see:

• The supplier's invoice and delivery notes
• Photographs of the materials on site, dated, ideally with something in shot that identifies the site
• Evidence the materials are stored securely, under cover where appropriate, and separately identifiable as belonging to this scheme
• Confirmation they are covered by the site insurance
• The surveyor's own sighting of them at the visit

Vesting is the part that matters legally. For a lender to fund materials it needs comfort that title has passed to you and will not be lost if the supplier or contractor fails. A supplier's retention of title clause means the materials still belong to the supplier until paid for in full, so a lender funding them could be funding somebody else's property. Expect either evidence that they are paid for outright, or a vesting certificate confirming title has passed.

Off site materials are much harder. Items being fabricated at a supplier's premises, such as windows, staircases or structural steel, are a genuine cash flow problem because the deposit is large and the delivery is months away. Some lenders will fund them, but normally only with a vesting certificate, proof of separate storage and identification, confirmation of insurance, and on larger sums an advance payment bond from the supplier. It is worth asking, because on a scheme with a large joinery or glazing package the amounts are significant.

Ask at term sheet stage whether materials on site are fundable and at what percentage. It changes your peak working capital requirement and it almost never appears in the headline terms.

What actually delays a drawdown

Ranked by how often it happens, with realistic timings. The two to three week cycle assumes none of these.

1. Surveyor availability. Adds 5 to 15 days. The most common delay by a wide margin, and it is nobody's fault. Monitoring surveyors cover large areas and book up. A claim submitted the day after their regional visit waits for the next one.

2. An incomplete or badly formatted claim. Adds 3 to 10 days. The claim goes back, you resubmit, and you re-enter the queue. First claims are disproportionately affected because the format has not been established.

3. Missing certificates. Adds 5 to 20 days. Interim building regulations certificates, electrical certification, structural engineer sign off on specific elements, warranty inspector sign off. These are obtained from third parties on their timescale, not yours, and a surveyor will not certify work that should have been inspected and has not been.

4. A disputed valuation. Adds 7 to 21 days. Covered below. A second visit means the surveyor's availability problem all over again.

5. Contractor or site insurance lapsed. Adds 2 to 10 days. Entirely avoidable and surprisingly common. Diary the renewal dates of the contractor's public liability and contract works policies.

6. Lender internal processing after certification. Adds 2 to 5 days. The certificate arrives, the case manager reviews it against the facility, the drawdown is approved internally. Lenders with delegated authority are at the fast end.

7. Outstanding conditions subsequent. Variable. Things you agreed to provide after completion by a set date. A missed condition can block a release entirely until it is cleared.

8. Payment processing. Adds 1 to 3 days. The final step and the only one you cannot influence.

Cumulatively this is why a two to three week cycle becomes six weeks on a badly run scheme, and it is why the working capital table above is built on six weeks rather than three.

What the monitoring surveyor is actually checking

Enough detail to prepare for, rather than hope.

Measured work against the schedule. The core of the visit. They are measuring what has physically been done and valuing it against the priced schedule of works agreed at the outset. Not what you have been invoiced, not what you have paid. What exists on site.

Quality against the specification. Work done to a lower specification than priced will be valued at the lower specification, or not certified at all.

Compliance with the approved drawings and planning permission. A surveyor who sees work differing from the consented drawings will flag it, and that is a bigger problem than a reduced claim, because it affects the lender's security.

Building regulations progress. Which stages have been inspected and signed off, and whether the inspection record matches the work.

Cost to complete. The most important thing they report on, and the one developers least expect. The surveyor assesses whether the remaining facility plus your committed equity is still enough to finish the scheme. If it is not, that is a covenant breach, and it can stop drawdowns entirely even though this month's work is fine. Our page on senior debt covers what happens next.

Programme against the original timetable. Whether the scheme is on, ahead of or behind schedule, and if behind, by how much and why.

Variations. Whether anything has changed from the approved scheme, and whether the lender consented. Unapproved variations do not get certified.

The contractor. Still on site, still engaged, insurance current, no evident dispute. A contractor who has walked off is a major event and the surveyor will report it immediately.

Health and safety and site management. Not their primary job, but a badly run site colours the whole report.

Materials on site, where you are claiming them, and retentions, meaning whether the contract provides for them and whether your claim correctly reflects it.

How to prepare for the visit

• Have the priced schedule marked up against your claim, line by line, so the surveyor is checking your figures rather than constructing them
• Dated photographs of progress, particularly of anything about to be covered up. Work that is hidden before it is certified is work you will struggle to claim
• Interim certificates collected and available, not promised
• The contractor's insurance certificate, current
• Delivery notes and invoices for any materials being claimed
• Be there, or have your site manager there. A surveyor with a question and nobody to ask writes a cautious report
• Do not claim work that is not visible. It is the fastest route to a reduced valuation and it damages your credibility on every subsequent claim

When a claim gets cut

It happens, and it happens most on first claims.

How often. Reductions on an initial claim are common, because the claim format and the measurement basis are still being established between you and the surveyor. By the third or fourth claim they should be rare. If they are not, the schedule of works or the claim preparation is the problem, not the surveyor.

By how much. Typically 5% to 15% where the claim is broadly sound and a line or two is disputed. More where work is claimed that has not been done, where the specification differs, or where the claim includes unapproved variations.

What actually happens. The surveyor certifies the amount they agree. In nearly all cases the lender releases the certified figure rather than holding everything, and the disputed balance rolls into the next claim once the work is complete or the evidence is produced. So a cut claim is usually a cash flow problem of one cycle, not a refusal.

The route to challenging it:

Ask for the basis in writing. A competent surveyor will set out which lines were reduced and why. Most disputes dissolve at this point, because the reason is specific and often correct.

Produce the missing evidence. The majority of reductions are evidential rather than substantive: work was done but could not be seen, or a certificate was not available. Supplying it usually resolves the point.

Request a desktop review rather than a second visit. Faster and cheaper where the dispute is about documentation rather than about what is on site.

Escalate to the lender. The surveyor acts for the lender, so the lender can instruct a review. Do this where there is a genuine disagreement about measurement, not because you dislike the number.

A second opinion, at your cost. A last resort, rarely proportionate, and it will not endear you to anybody.

How to get paid faster

The practical list, in rough order of value. On the arithmetic above, three weeks off the cycle is worth £32,308 of your own cash.

Fix a monthly valuation date and book the surveyor against it in advance. Surveyor availability is the biggest single delay, and booking ahead removes most of it.

Ask the surveyor, before claim one, exactly what format they want. Then use it every time without variation.

Submit on the agreed date, complete. A claim submitted two days late waits for the next slot, not two days.

Photograph everything, dated, especially before anything is covered.

Collect certificates as you go. Interim building regulations sign offs, electrical certificates, engineer confirmations. Chase them on the day the work is done, not on the day you claim.

Align the contractor's application with your claim date, so you are not claiming on figures the contractor has not yet given you.

Deal with the surveyor directly where the facility allows it. It removes a routing step on both the booking and the queries.

Know who to chase, by name. The surveyor's office for the visit and the report, your case manager at the lender for everything after the certificate. Chasing the lender for a report the surveyor has not issued achieves nothing, and chasing the surveyor for a payment the lender is processing is equally useless.

Chase in writing, on a schedule. A diary note two working days after each stage is due, every time.

Never let a claim lapse into the next month. The cycle resets and you have lost four weeks of working capital.

Who Is Eligible for Staged Drawdown Finance at Bridging Finance Broker

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