The challenge with small projects
Development finance works best for projects with total costs above £500,000. Below this threshold, you face two problems: many lenders have minimum loan sizes of £250K–£500K, and the fixed costs of development finance (legal fees, valuation, monitoring surveyor) represent a disproportionately large percentage of the total deal.
On a £3M deal, £20,000 in legal and professional fees is less than 1% of costs. On a £300K deal, those same fees are 6–7%. This makes small deals less efficient and means you need higher profit margins to make them work.
Options for small projects
1. Specialist small-lot development lenders
Some specialist lenders specifically target the small development market, with minimum loan sizes from £50,000–£150,000. They understand the economics of small schemes and price accordingly. Interest rates may be slightly higher (10–14%) but terms are otherwise standard.
2. Bridging finance
For light refurbishment projects — single property cosmetic renovations with no structural work — bridging finance is often the better choice. You get one lump sum at completion, no staged drawdowns, no monitoring surveyor, and the process is faster and simpler. Rates are 0.5–1% per month with terms of 6–18 months.
3. Refurbishment bridging (heavy refurb)
Some bridging lenders offer "heavy refurbishment" products that include staged drawdowns — essentially development finance in all but name, but with lower minimums and simpler processes. These can work well for projects in the £150K–£400K range.
4. Personal finance / cash + top-up
For very small projects (under £150K total costs), self-funding with a bridging top-up can be the most efficient approach. Using personal savings for 50–70% of costs and borrowing the balance keeps finance costs manageable.
Making small deals work financially
- Target higher margins: Small projects need 25–30% profit on cost (vs 20% for larger schemes) to absorb proportionally higher finance costs.
- Minimise professional fees: Negotiate fixed-fee legal work, use the lender's panel valuer (often cheaper), and ask about monitoring surveyor frequency (monthly vs bi-monthly).
- Keep the programme short: Interest is time-based. A 6-month project at 12% costs half as much as a 12-month project at the same rate. Small projects should complete in 6–9 months.
- Consider the exit carefully: Sale costs (estate agent at 1–1.5% + legal) eat into margins on small deals. If you're retaining as BTL, ensure the rental yield supports the refinance.
Finding lenders for small projects
Submit your project on Assesr regardless of size. The AI matches to lenders whose minimum loan size fits your deal — no wasted time approaching lenders who'll decline on ticket size alone. Free to submit, 0.5% on drawdown only.