Commercial lenders need to step up

Paul Howells Accumulate Capital

Paul Howells is CEO of Accumulate Capital


Chancellor Rishi Sunak’s announcement of the government’s so-called ‘Winter Economy Plan’ has confirmed what many were hoping would not be the case: COVID-19 is not going away any time soon.

In an extraordinary sequence of events, social distancing measures will now be in force for the rest of 2020. There is also the possibility of a second lockdown if infection rates rise.

All this is playing on the minds of those involved in the construction and property sectors. While workers are still allowed to enter construction sites, there are concerns that the latest announcement could result in commercial, residential and infrastructure development projects coming to a halt. This could arise as a consequence of cashflow issues or disruption to supply chains.

Leaving the health concerns of the pandemic to one side, I believe that COVID-19 has triggered a lending crisis.

What I mean by this is simple: businesses are no longer in a position to readily access finance due to the stringent lending measures imposed by high street banks.

A cashflow crisis?

The government has tried to counter potential cashflow problems through the announcement of the Coronavirus Business Interruption Loan Scheme (CBILS). The overall success of the scheme is questionable. According to Small Business, 53% of loan applications were rejected in April. HMRC is also expecting a flood of complaints from SMEs over this loan scheme once its Business Banking Resolution Service is launched in mid-November. From this, we can see that tension is clearly simmering.

It’s no revelation that access to finance is a challenge for property developers. Even before the pandemic, it was reported that over half (57%) of SME developers identified access to finance as one of the biggest obstacles they face. COVID-19 has only increased the number of obstacles that developers are facing.

This explains why property development finance has become a popular loan option for construction firms looking beyond high street banks. However, that’s not to say the development finance sector has not also been affected by COVID-19.

A CBRE report released in the summer revealed that some lenders are retreating from the market and others are not willing to take on new cases. But, while some are deciding to hold on to their capital, this is not the case across the board.

Experienced property development finance firms are still showing a willingness to consider new applications and actively work with their clients to develop tailored loan solutions. These firms typically have dedicated funding lines from investors, meaning that capital can deployed quickly. What’s more, backed by their knowledge of the construction industry, property development finance firms are able to properly evaluate each case received and take into account certain factors that might not be properly understood or appreciated by high street banks.

Supporting construction firms

The fact of the matter is that demand for residential and commercial property will not disappear. Construction projects need to continue in order to meet future business and investor demand, and this will be vital in supporting the country’s economic recovery once the pandemic has been contained. While all businesses will be treading carefully, lenders involved in commercial lending should not simply retreat from the market.

In my perspective, it is vital for those involved in commercial lending to work with construction and property firms to help them overcome this challenging period. Doing so will ensure they are best positioned to meet future market demand for real estate and infrastructure and help fuel the UK’s post pandemic economic recovery.


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