We previously looked into our journey to date and how we’ve developed the lender proposition. Below, we explain how – pretty much literally – time is money, while the next blog takes an overview of some interesting current market trends we see.
"Tomorrow, and tomorrow, and tomorrow,
Creeps in this petty pace from day to day"
Bank credit committee…
or possibly Macbeth
When Mick Jagger sang ‘time is on my side’, he didn’t dedicate the track to property developers. There are good reasons for this.
We all know that banks take their time when deciding whether to extend loan capital to developers. Lots of it. What’s often not considered is the opportunity cost of this to the developer. That waiting time is often taken for granted, as if it should be the norm. But it comes with a steep price tag for those waiting for the decision.
We recently had a conversation with a developer of about 30 years’ experience. He said that on every project he'd worked on over those many years, he spent 90% of his time for four to five months sorting his finance. He was resigned to it – that’s the way this business works. But it shouldn’t, and it doesn’t have to.
In effect, that’s a third of your project time spent unprofitably. In how many other areas of business would this be considered acceptable – or even sane? It gets worse. Our CEO recently shared some focus group research at a property meeting and when reading out the slide of quotes about experiences with traditional sources of funding for their projects, among the publishable comments one of the SME developers said that “three months later they were still asking for more documents”. He was corrected by someone in the audience saying “for me, that was 5 months recently”.
Another aspect of waiting time is that it weakens your bargaining position with the vendor. Vendors, like developers, don’t like to hang around. Unlike developers, but very much like taxi drivers, they get paid waiting time. Because there’s two things vendors really value: certainty of a sale, and not having to hang around for it - speed and certainty. Of course, the two are interrelated, as the more they keep hearing from a developer that they’re almost ready to complete the deal, and that cash will hit their bank account any day now, the twitchier they get, and understandably so. And the more likely they are to look around for alternatives.
Conversely, if you can guarantee them quick funding, where others potentially can’t, then that strengthens your hand. Most importantly, it means that they will likely accept a lower offer than one where they are expected to hang around waiting. Like the headline says, time is money.
A quick decision on funding therefore helps your bottom line in two ways: it increases your turnover by removing dead time waiting for the bank to stop shuffling bits of paper to and fro around its credit committee(s) - enabling you to grow your property business quicker, and also potentially lowers the cost of your most fundamental input – the property, site or land (and we’ve seen tens of thousands of pounds being saved against the highest bid by our customers).
This is where we can help. We can normally give you an indicative decision within 24 hours of you first contacting us – often more like one. Even before that, where many lenders want you to eke your way through pages and pages of application forms, ours is simple, straightforward and mercifully short. Throughout the process, our drawdown process is equally prompt and efficient.
We’re able to do this because we have built this business around property expertise – ultimately, what we wanted in a lender when we were in your shoes. Our core people have decades in the business, both as funders and developers. We understand property development, so we know what we’re looking at when a developer’s application appears on our desk - we know what you want and are able to make a decision promptly, unlike someone who has to process the same request at a bank, for whom a loan, is a loan, is a loan. And they will indeed creep in their petty pace, ticking boxes at a snail’s pace.
So, if you want to make the most of your time and grow your property business quicker and more profitably, please spend just a small amount of it talking to us.