Understanding the difference between written loans and drawn loans, through to what redemption and exit means is crucial during the lifetime of your loan agreement.

We have previously written articles on Demystifying Common Finance Buzzwords and Understanding Commercial Finance Terminology which are all important when dealing with loans and borrowing. In addition to this series, we now detail the basics of loan terminology.

Term

The term determines the length of time the loan you have applied for will be available. This is agreed in advance by you and the lender and you may have both a minimum and maximum term.

Written loans

A written loan is what a lender has pledged but has not actually paid out yet. It is essentially a loan in principle and can be drawn upon as agreed by both parties.

Drawn loans

A drawn loan is the actual balance of capital that has been lent to the borrower by the lender in funds or fees.

Annual Percentage Rate (APR)

An APR is the cost you pay each year to borrow money, expressed as a percentage. For example, if you borrow £1000 at an APR of 15% you will pay £150 per year in interest.

APR = ( (Fees+Interest/n) x 365) x 100

Where:

Interest = total interest paid over life of the loan
Principle = loan amount
n = number of days in loan term

Net Sales Proceeds (NSP)

Sale proceeds less associated fees (e.g. agent fees). The lender can keep 100% of NSP until all capital and interest have been repaid. Once this is achieved the borrower retains further proceeds.

Completion

The loan obtains completion when the initial payment/purchase (i.e. land) has been made and the borrower requires the first (or sometimes only) draw of funds. It is the day in which the owner and seller legally transfer ownership.

Drawdown

Drawdown refers to the process of accessing funds from the agreed loan in increments or stages as needed during a construction project.

Construction projects often require financing at different stages as expenses arise, such as for materials and labour. Instead of receiving the entire loan amount upfront, the borrower will typically ‘draw down’ funds from the loan as needed, in accordance with the project's progress and specific milestones.

Once the drawdown request is approved by the lender, the funds are released to the borrower to cover the specified expenses.

Redemption

Redemption refers to the repayment of a loan in full, typically achieved by the sale of the property that was used as security for the loan.

Once the property is sold, the proceeds from the sale are used to repay the outstanding loan amount, including any accrued interest, fees, and other associated costs. The repayment of the loan through the sale of the property is known as redemption.

Exit

Exit quite simply means full repayment has been made. This is when the loan agreement has been settled in full and the account is closed.

Gross Development Value (GDV)

The Gross Development Value is what the project as a whole is worth (estimated total sale value).

Loan to Value (LTV)

The Loan to Value is the loan amount to the value of the asset(s) used to secure the finance, expressed as a percentage.

Loan to gross development Value (LTGDV)

The Loan to gross development Value is the loan amount divided by the gross development value (as a percentage)

Onyx Property Finance are experts in providing financial solutions for property developers. We are dedicated to keeping on top of market trends and ensuring our customers are kept informed of any changes that might affect their borrowing, projects, and investments – see our blog for all the latest insights.

Speak to an expert today and get up to 100% of your purchase and build costs with fixed interest rates for the lifetime of your loan: info@onyxmoney.co.uk.