How much deposit do you need for commercial development finance?
How much of your own capital a commercial scheme needs on day one, and how to reduce it.
On a standard senior facility you fund about 30 to 35 percent of total cost as day-one equity. Stretch senior cuts that to 20 to 25 percent and mezzanine to around 10 to 15 percent. A JV equity partner can fund the gap entirely in return for a share of the profit.
At a glance
- Senior debt~30 to 35% equity
- Stretch senior20 to 25%
- Mezzanine10 to 15%
- JV equityCan fund the gap
How much deposit do you need?
Your deposit is the gap between total project cost and the maximum loan. On a standard senior facility for a commercial scheme, that is roughly 30 to 35 percent of cost.
Adding leverage above the senior layer reduces the equity you fund on day one.
How leverage changes the deposit
| Structure | Leverage (of cost) | Day-one equity |
|---|---|---|
| Senior | 65 to 70% | 30 to 35% |
| Stretch senior | 75 to 80% | 20 to 25% |
| Senior + mezzanine | 85 to 90% | 10 to 15% |
| With JV equity | Up to 100% | Funded by partner |
What counts as your equity
Equity is not only cash in the bank. Lenders will usually recognise:
- Land already owned outright
- A site bought below market value (the discount counts)
- Planning uplift already secured on the site
- Genuine works already paid for
Can you get 100% commercial development finance?
Effectively yes, but not as a single 100 percent loan. It is achieved by filling the equity layer another way.
Pure 100 percent debt with no equity at all is rare. 100 percent funding almost always means a partner or a discount provides the equity.
How to fund a scheme with little or no deposit
There are five common routes:
- JV equity: a partner funds the equity for a profit share
- A private investor combined with senior development finance
- Buying below market value so the discount is your equity
- Additional security: cross-charging another property you own
- Equity release from other owned property to fund the deposit
Using a JV equity partner
A JV equity partner funds part or all of the equity above the debt, in return for a share of profit rather than interest. It suits developers with a strong scheme but limited capital.
Buying below market value
Where a commercial site is bought below its market value, the discount is treated as equity already in the scheme, reducing the cash you add. Lenders will want the below-market purchase evidenced by the valuation.
Additional security and cross-charging
Offering a charge over another property you own can raise the effective leverage on the scheme, reducing the cash deposit, though it puts the additional asset at risk.
The trade-off of low-equity structures
Putting in less of your own money usually means giving up more of the upside, through a JV partner's profit share or a higher cost of capital.
How we structure the equity
We model the cheapest way to fill the equity gap for your scheme, weighing mezzanine against JV equity against a private-investor structure, so you keep as much profit as the scheme allows.
Worked example: the equity on a £2m commercial scheme
Take a £2m total-cost scheme with a £2.8m GDV, and see how the structure changes the deposit.
| Structure | Loan | Your equity |
|---|---|---|
| Senior at 70% of cost | £1,400,000 | £600,000 |
| Stretch at 78% of cost | £1,560,000 | £440,000 |
| Senior + mezzanine at 88% | £1,760,000 | £240,000 |
| With JV equity | Up to £2,000,000 | Funded by partner |
The same scheme needs £600,000 of equity on senior debt but only £240,000 with a mezzanine top-up, freeing capital for the next site.
How lenders verify your equity
Lenders confirm your equity is real before drawdown. Expect to evidence:
- Proof of funds for any cash contribution
- A valuation supporting a below-market purchase
- Title showing land owned outright
- Invoices for works already paid for
Mistakes that increase your deposit
- Understating costs, so the lender re-sizes on a higher true cost
- No contingency, which lenders add back and fund less against
- An optimistic GDV the valuer will not support
- Ignoring rolled-up interest, which is part of total cost
Can you fund a commercial development with no deposit?
Not with a single 100 percent loan, but yes if the equity layer is filled another way.
In practice that means a JV equity partner, a private investor alongside senior debt, a below-market purchase whose discount is the equity, or additional security over a property you already own.
Private investors and the equity layer
A private investor can fund the equity that sits above the senior loan, often combined with senior development finance on the same scheme.
The investor takes a return out of profit rather than a fixed rate, so the structure suits a profit-rich commercial scheme where the developer is short of day-one capital.
Equity release from property you own
Releasing equity from another commercial or residential asset you own can raise the cash for the deposit on a new scheme.
It turns dormant equity into deployable capital, though it puts the existing asset's equity to work and should be weighed against the cost of that borrowing.
Below-value purchases and short-lease opportunities
Buying a commercial site or building below its market value means the discount counts as equity already in the scheme, cutting the cash you add.
Short-lease and distressed commercial assets can offer that discount, but the valuation must support the below-market purchase for a lender to recognise it.
How much does the equity actually cost?
Equity is not free even when a partner funds it. A JV partner's profit share, or a private investor's preferred return, is the price of putting in less of your own money.
We weigh the cost of each low-deposit route against the equity it frees and the return on deploying that equity on another scheme.
How much does commercial development finance cost?
Senior rates run around 9 to 12 percent a year plus a 1 to 2 percent arrangement fee, with higher layers priced above that.
The cost of capital sits alongside the deposit in your appraisal. Our rates guide breaks down the full, all-in cost of funds.
Is it easy to get finance with a small deposit?
A low-deposit structure is harder than a conventionally geared one, because someone else carries more of the risk and wants paying for it.
It is most achievable on a profit-rich scheme with a strong team, where a JV partner or investor is comfortable funding the gap.
Worked example: 100% funding with a JV partner
Take a £2.5m total-cost commercial scheme where the developer wants to commit no cash.
| Layer | Amount |
|---|---|
| Senior + mezzanine (88% of cost) | £2,200,000 |
| Equity gap | £300,000 |
| Funded by JV partner | £300,000 |
| Developer cash in | £0 |
The partner funds the £300,000 equity in return for a share of profit, so the developer commits no cash but gives up part of the upside.
Does the deposit vary by commercial sector?
Yes. Sectors with a more certain exit support higher leverage, so they need less equity.
A pre-let logistics or industrial scheme, or an operator-backed care home, can reach higher leverage than a speculative office or leisure scheme, where lenders hold back more and the deposit rises.
How much deposit do you need for commercial development finance?: common questions
How much deposit do I need for a commercial development?
On a standard senior facility, roughly 30 to 35 percent of total cost as day-one equity. Stretch senior reduces that to 20 to 25 percent, and mezzanine to around 10 to 15 percent on a strong scheme.
Can I get 100 percent commercial development finance?
Effectively yes, where a JV equity partner funds the equity layer for a profit share, or a strong below-market-value purchase provides the equity. Pure 100 percent debt is rare.
Does land I already own count as equity?
Usually yes. Land owned outright, bought below market value, or carrying a planning uplift can count toward your contribution and sharply reduce the cash you add.
How can I fund a scheme without a deposit?
Through JV equity, a private investor alongside senior debt, a below-market-value purchase, additional security over another property, or equity release from property you own.
What is the downside of low-deposit funding?
You give up more of the profit, through a JV partner's share or a higher blended cost of capital. Less capital in means less upside out.
Ready to fund a scheme?
Send us the outline and we will come back with a view on fundability and likely terms within one working day.