So it’s no surprise a growing number of smaller developers and builders are putting their plans on hold because, against such a backdrop, they’re convinced they won’t get the development finance.
Nothing could be further from the truth. Yes, if you’re a well-established developer with a strong track record and a decent level of equity, finance is far easier to secure — and far cheaper — than if you’re a small or new developer with less experience.
But that doesn’t mean you can’t get finance. Far from it.
In 2019 to date, we have seen a number of specialist development finance lenders emerge on to the scene. Their appetites in terms of geography, loan size and development type naturally vary, but between them every risk profile of borrower is covered.
Some are backed by private equity firms, but the majority are funded by high-net-worths, who can be a lot more flexible and imaginative in the way they structure deals. This is good news for less-established developers as a positive decision is far more likely.
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Yes, less-experienced developers can expect to pay a premium, but if their business plans stack up and they can still make a margin, there’s no reason to put a project on hold or move on from it altogether.
A savvy smaller developer will factor the increased price of their finance into the mix and make a profit regardless.
Also, developers need to look to the future. A couple of deals with specialist lenders who back projects for newer or smaller developers can give a larger lender with lower rates the reassurance that you are experienced enough to back on the next project. In short, smaller developers will not stay on more expensive rates indefinitely.
Deliver successful projects and high street lenders will deliver finance — and at greater scale than previous deals. Over the past two years, I’ve worked with a couple of developers who have done their hard yards with smaller lenders with rates that reflect the risk, but who have now earned their place at the top table and are reaping the rewards that come from that.
In summary, if you’re a newer or smaller developer, don’t despair. Speak to a specialist finance broker who will know a lender that will work with you and do your best to make the project work. If that happens, everything will fall into place.