November 24, 2017

Thinking outside the tick box

Steve Larkin, Director of Development Finance here at LendInvest, recently contributed to an industry article by Show House Magazine, examining the recent growth of alternative finance options for SMEs.

The article, which features the viewpoints of a number of lenders, looks at the gap companies like LendInvest are filling in the market by satisfying customer need for fast finance delivered alongside personal service.

Having spent 26 years with RBS before joining LendInvest two years ago, Steve explains how the inability of the banks to fund SMEs was a problem:

 “After the downturn, a lot of high street lenders looked at their real estate books and realised they had to cut costs, because they weren’t making much money. The SME developer needs a bit more hand-holding and therefore wasn’t cost efficient for banks like RBS and Santander and HBOS. Internally, when you are doing a £1m deal for an SME developer, you would have to go through 10-15 people to get that approved and then someone to manage it. When the cost of capital was so low, it wasn’t cost efficient for them to do that and, at that point, high street banks almost stepped away from that market. So, what you found from 2011 to 2014 was that SMEs couldn’t get any finance, because there weren’t people offering that.”

Steve goes onto explain that it was this gap in the market that led LendInvest to be spun-out of Montello in 2013.

“These SME builders know what they are doing, have track records but still can’t access the high street banks and, to be honest, don’t want to. A lot of them had really bad experiences with banks, so are looking for an alternative lender who does it a slightly different way.”

It’s the strength of personal relationships between lenders and their borrowers that Steve cites as being so important. It’s this partnership for mutual benefit that really matters in the process:

“If a developer trusts you, then it is a much more open conversation about potential delays or costs going up, whereas if they don’t feel they’ve got that and are speaking to six people, they are more likely to not bother saying anything, because they don’t know what the ramifications are. As long as the dialogue remains open and we can trust each other, we can work through anything. It is not bank versus developer, it is a partnership, because obviously we want to see that developer grow in term of their projects. Clearly, we are looking after our own investment, so look at it very much as a two-way street.”

To encourage more SME developers, LendInvest set up a Property Development Academy last year. Free, one-day courses held in London, Bristol, Birmingham, Manchester and Edinburgh cater for 25 candidates, ranging from the ‘just interested’ to those who have been in the market for 25 years. Professional speakers include lawyers, architects, planners and surveyors. Some 200 people have been through it so far, with eight more events lined up next year.

“We found a gap in the market where people couldn’t get finance because they didn’t have the experience. We are trying to assist prospective developers with their journey in terms of giving them guidance and, more importantly, providing them with a network of people they can ask questions of. We see there are gaps in experience and if we can provide help on their journey, then all well and good.”

As to the future, it may become harder for government to ignore this burgeoning sector, which seems to be supplying exactly what the UK’s army of SME developers want and need.

LendInvest’s Christian Faes has spoken out strongly, including at the recent Conservative Party conference, calling on the government to recognise the importance of alternative lenders and do more to tackle obstacles preventing small developers building. Speaking of the government’s £3bn housebuilding fund created almost a year ago and managed by the Homes & Communities Agency. Steve adds:

“I don’t think anyone knows how much of that has been released out to small SME developers. There is lots of talk about it but the people we speak to don’t seem to be able to access that.”

To read the full article, click here.

This article was written by Gill Oliver and first published in Show House magazine.