Whilst the world slowly unreels from the chaos and uncertainty of Covid-19, property developers will have to start exploring their financial options without the lifeline that CBILS provided.
Although the follow-on from CBILS, RLS, did provide some assistance, it certainly didn’t offer the financial support that its older sibling did.
CBILS, the Coronavirus Business Interruption Loan Scheme, has provided temporarily relief to millions of businesses in the UK – though, a year on from the closing deadline and with arrangements set to change, now is a perfect time to re-evaluate your commercial interests.
Recap
CBILS was a government-backed initiative that gave companies affected by covid support during the peak of the outbreak.
For property development, this meant:
- The ability to release £5m per site
- The government swallowed lender and interest fees for 12 months
- Up to 75% of the net site value was available
There were as many as 1.67 million loans approved, which is the equivalent to 28% of all UK businesses.
Of the 1.67 million, at least 19% was given to the property and construction sector, ensuring that less revenue was lost and disruptions in cashflow could be rectified.
Since CBILS loans were put in place there are considerations that need to be made.
- An increase in the cost of labour and materials has meant shortfalls in budgets, which led to unwanted delays in developments
- Any valuations made during the lockdown period would have been low and thus not reflected what your property would be worth today
- There may be a great desire to retain assets rather than dispose
We know there is reluctance to extend loans, due to the potential for additional information and details on why this occurred being required by the British Business Bank. This coupled with the fact that from month 13 onwards clients will have to start paying interest, there is a great volume of clients looking to review their options in the current market.
As a positive, the lending market hasn’t felt this buoyant for a long time. With multiple existing and new lenders offering higher leveraged and new specialist products like ‘finish and exit’, there is certainly someone that will fit nearly every situation and requirement.
The one area that you could say has potentially diminished is that of the common high street lender, which for a lot of parties was their go to for funding.
Whilst I’m not suggesting that those lenders are no longer looking to fund moving forward, their transaction record throughout covid means their lending far exceeded planned targets and combined with their appetite to risk and leverage, the lean towards specialist lending/lenders is more noticeable than ever.
Competition will naturally get the best out of the market, but I feel we will see a bottom sooner rather than later.
Looking at the market, the enquires we are receiving from our clients and introducers are mostly linked to understanding the refinancing options for their schemes, whether completed and being sold or, as with some cases, in need of further funds urgently to achieve PC on a ‘half-built’ site.
With ‘good’ new sites being rare, the ability to release equity from a current site has been key for our clients in not missing out on their next project.
The last few years seems to have been a conveyor belt of new challenges for the industry. Whether that be political reform, global pandemic, or the likes of Brexit, we have weathered a number of challenges as an industry.
Developers are adaptable and quick to respond to aforementioned issues and that has meant the alternative finance industry moves forward much faster than traditional lending.
Whilst at times this has been frustrating, it remains our job to continue with entrepreneurial lending practices and swift responses to external challenging factors, to accommodate the ever-moving needs and wants of our clients.
The industry remains strong and continued improvements and adaptations will ensure that we continue to stay in front of further potential issues.
Tom Lee is a real estate financial advisor and managing director of Pure Structured Finance
