Short-term finance is required to pay for the costs during the property development process, comprising expenses on site, construction, professionals, letting/sale and marketing, etc. As this money is spent it creates interest charges which accrue over the duration of the process.
Obtaining the right sort of finance on the best terms is a complex and specialist activity and in most circumstances, is necessary for property development. The cost and availability of debt finance has a considerable influence on the success of a property development. The selection of a single or an optimum mix of financing methods will in most circumstances, directly affect the profit margin to the developer or even financial success or failure of the development.
If the developer wishes to hold the completed building for renting, long-term finance will be sought to repay the development short-term finance. Alternatively the trader developer would pay off the short-term finance from the sale price of the completed and let building and realise the profit from the development process.