Author: Marc Morris

Fiduciam continues to support small house builders across the United Kingdom with development funding. The latest project to approach completion is a seven-house development in Taplow.

Fiduciam provided a flexible multi-drawdown facility that enabled the borrower to repay early if sales were strong while providing the security of a longer-term loan. The interest rate is a competitive 0.74% per month. Interest was retained for the initial part of the 24-month term.

The scheme has been well received by the market and multiple units are already under offer. Since Fiduciam and the borrower agreed to release amounts in advance, the borrower benefits from the certainty of knowing the proportion of sales proceeds that will be retained by Fiduciam and how much will be available for financing their next projects. Fiduciam expects the first sales to complete within the next two months.

Louisa Willoughby, Case Manager at Fiduciam, comments:
“Over the last year, Fiduciam has expanded its product offering targeted at small housebuilders. We have funded a variety of ground up projects for experienced developers across the United Kingdom, typically between 3 and 12 units. The Taplow project benefits from an excellent location and easy access to Crossrail. Its appeal to young families and commuters is confirmed by the sales already under way.”

Marc Morris, Underwriter at Fiduciam, adds:
“We are keen to develop close long-term relationships with borrowers such as the developer of the Taplow project. While new technological tools and platforms enhance our ability to gather and interpret information, and enable us to mitigate credit risk, they are no replacement for previous collaboration. From the borrower’s perspective, our knowledge of their business allows us to offer better terms that are more tailored to their requirements. For example, we often seek to help repeat borrowers transfer equity from one project to the next and thus accelerate the project cycle. We are also happy to discuss projects at an early stage, and to provide visibility on financing options.”

The UK’s well documented housing shortage, and the efforts made to address it, have not prevented the marked decline of small house builders in recent years. COVID-19 has posed additional challenges, although lenders have been able to assist individual firms with products under the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme.

The market share occupied by small house builders fell from 28% in 2008 to 12% in 2015 [1]. Previous research from the NHBC Foundation lists (a) the planning process, (b) the availability and cost of land and (c) the availability of finance as the main factors inhibiting growth [2]. 

Since 2015 Fiduciam has endeavoured to provide relationship-based project financing for a range of SMEs, including house builders. We have sought to assist developers grow by offering flexible finance solutions that help accelerate their project cycle through the transfer of equity from one project to the next.

The typical Fiduciam house builder is developing three to ten units. We like to see a track record of completed previous projects and a willingness to engage with a lender. Works are funded through drawdowns approved by the appointed project monitor. Loan terms are generally 18 to 24 months for ground up projects and a little less for other schemes.

COVID-19 has impacted house builders in a variety of ways. We have seen borrowers affected by closed sites, limits to the number of workers on site, the reduced availability and higher cost of materials, and planning and utility connection delays. These construction delays, accompanied by the impact of social distancing restrictions on viewings, have prompted cash flow headaches and the risk of development loans running overtime.

Fiduciam has provided fresh funding to developers throughout the COVID-19 pandemic, including facilities under the Coronavirus Business Interruption Loan Scheme. This scheme seeks to assist SMEs with their additional liquidity requirements prompted by the disruption. Fiduciam has utilised the scheme to help provide individual house builders with the time and resources they require to finish existing projects and confidence to start works on new sites. The full impact of COVID-19, and support schemes such as CBILS, on house builders and housing supply will not be known for some time.

Fiduciam has been accredited by the British Business Bank to offer loans under CBILS. Delivered through British Business Bank accredited lenders, CBILS is designed to support the continued provision of finance to UK smaller businesses during the Covid-19 outbreak. The scheme enables lenders to provide facilities of up to £5m to smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.

References:

[1] Department for Communities and Local Government (2017). Fixing our broken housing market.

[2] NHBC Foundation (2017). Small house builders and developers.

Fiduciam, the institutionally funded short-term lender to SMEs and entrepreneurs, has just completed a £1.18million loan to finance a popular hotel in Cornwall.  The loan which falls under the Coronavirus Business Interruption Loan Scheme (CBILS), will enable the hotel to continue operating and investing until the end of 2022.

2020 has been a year of contrasts at Hustyns Hotel and Spa in Wadebridge. After closing for three months during the lockdown, it reopened in July to experience its highest demand for rooms in recent years, only to be affected once more by this second national lockdown.

Fiduciam’s loan provides Hustyns Hotel and Spa with secure commercial funding for 24 months. Financing costs have been reduced thanks to the Coronavirus Business Interruption Loan Scheme, and the absence of early repayment charges gives the borrower added flexibility.

Ravi Gupta of Hustyns Hotel and Spa, comments, “Covid-19 has posed unique challenges to the hospitality industry – it’s been a real year of volatility. 2020 was expected to be a significant year as we had invested in the hotel with a refurbished restaurant and a new ‘glamping’ offering coming on stream.

“We know that we have a good business model and strong demand, but after strong revenue and profit growth in 2019, the lockdown meant we experienced a difficult spring and early summer 2020 when we couldn’t let out rooms or lodges. Once the lockdown was lifted, we had to immediately scale up operations and staff levels for full occupancy. The loan from Fiduciam means that we cannot only weather this latest lockdown, but we can make the investments we want into our resort and know that our business’s future is secure for the next two years.”

Marc Morris, Underwriter at Fiduciam, says, “Hustyns is the perfect fit for our Coronavirus Business Interruption Loan Scheme offering. Pre-COVID the hotel was performing well. The CBILS loan provides 12 months of space for Hustyns to maintain resilience and rebuild its accounts before the borrower returns to servicing interest. In the medium term, the borrower plans to refinance onto a term product.”

Fiduciam has been accredited by the British Business Bank to offer loans under the Coronavirus Business Interruption Loan Scheme. Delivered through British Business Bank accredited lenders, CBILS is designed to support the continued provision of finance to UK smaller businesses during the Covid-19 outbreak. The scheme enables lenders to provide facilities of up to £5m to smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow. All economic downturns cause significant economic scarring in addition to any structural change. Short-term liquidity problems faced by even the best placed firms can quickly become solvency concerns, particularly as the result of an asymmetric shock such as a pandemic. Within this setting, Fiduciam continues to see pro-active businesses seek robust provision for their liquidity requirements over a 12 to 24-month time horizon.

Fiduciam is used to dealing with the unexpected, so while Covid-19 has been a particularly unwelcome shock – both for people’s health and for the economy– it is something we have tried to take in our stride as far as possible.

Successful short-term lending is all about being flexible and adapting to circumstances as you find them, so our team has been well placed to react to the challenging situation presented by the coronavirus.

Fiduciam was quick to see the potential of the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS). The scheme is designed precisely to help businesses whose plans and finances have been hit by the coronavirus outbreak, and this seemed to us to be an excellent match for the flexible short-term finance options Fiduciam offers. The construction sector has been particularly hard hit, with figures from the Office for National Statistics showing that output fell by around two-fifths at the height of lockdown. The restrictions put in place to prevent the further spread of Covid-19 have derailed a number of development and refurbishment projects. When Fiduciam was accredited for CBILS by the British Business Bank last month, we therefore anticipated strong demand from this sector.

As it turned out, it was not long before we were approached by a housebuilder, who had seen a development project thrown off track by Covid-19. They had taken out an initial loan to purchase two adjacent properties in an up-and-coming town on the south coast of England, with a plan to convert them into a range of residences attractive to both first-time buyers and families. Covid-19 threw these plans off track and they came to Fiduciam aiming to refinance their existing loan and to procure additional funds to complete the conversion project.

From the borrower’s perspective, there are clear advantages to taking out a loan under CBILS. Firstly, the loan allows the housebuilder to resume the construction works immediately which were halted when the lockdown was introduced. Whilst the housebuilder had obtained leverage at the outset of the project, none of the housebuilder’s usual lenders were willing to finance the continuation of the project. Furthermore, under CBILS, the Government pays the fees and interest for the first 12 months. This turned out to be critical to make the loan affordable, in light of the much lower profitability of the project than the pre-Covid projections.

The scheme is also advantageous for lenders, who benefit from a partial guarantee from the Government, enabling us to unlock institutional funding more easily. This also means we are able to offer a lower interest rate, which also provides an added benefit to our borrowers. Through the CBILS scheme, we were able to offer this housebuilder a £1.1 million loan topping out at 70% loan-to-value at an interest rate of around 0.8% per month, which is low for higher-risk development loans to small family-run housebuilders.

There are also direct benefits for the Government from the CBILS scheme. As well as helping to keep the economy moving and providing jobs, which is the primary objective of CBILS, this loan also served another Government objective, easing the current housing crisis by tackling the undersupply of residential accommodation. This project will create four new flats and three houses in place of one habitable property and a derelict farmstead.

The loan was not without complications, as the deal requires the transfer of land between the two properties, and the farmstead, although derelict, is also a listed building. However, Fiduciam is accustomed to dealing with all manner of complex lending scenarios and overcoming tricky issues, making us the perfect lender for this situation.

Our experience of CBILS so far has been extremely positive. Over the coming weeks Fiduciam is looking forward to helping many more high-quality businesses across the economy to get back on their feet, and return to growth, as the country gradually recovers from Covid-19.

The phrase ‘know your customer’ (KYC) is bandied about across many industries, but in the financial world it is mostly used in terms of identity verification and money laundering.  However, knowing your customer is important for other reasons.

From a lender’s point of view it is much easier to make decisions if we can really get to know our customers, understand their needs and work together for our mutual benefit.  However, with many of life’s necessities available at the click of a button it appears that relationships between providers and their clients are becoming a rarer and rarer. At Fiduciam we believe there is little substitute to knowing our borrowers well and understanding their businesses. Our relationships with our clients and their agents are what make us stand out from the crowd and are a major factor in the amount of repeat business we enjoy. Fostering long term relationships is therefore at the heart of our business, which is ultimately about helping our clients grow theirs.

Over the last few years, we’ve assisted a number of developers to organically upscale their businesses.   From a credit risk perspective, we like to see repeat borrowers build a niche of projects and experience. Those who know their market and seek to expand on it.

Growth can come from gradually upscaling the projects taken on and carefully building the capital required to invest as equity.  However, as a lender we can also work with developers to accelerate this cycle and increase the number of projects undertaken.

In one recent transaction we helped a client who had originally come to us several years ago for a £200k development loan.  Since then he has continued to expand his business, working on bigger projects that require different types of funding.  We recently completed a £1.6m loan for a permitted development facility in South London with this client using our ‘Stepping Stone’ loan.

Having just completed a scheme, but not yet sold the available units, he was ready to start a new project.  However, without the sale of units he didn’t have the funds to move on.  Knowing this client, and his development capabilities, over a period of years meant we were confident in his business and wanted to ensure he was able to move forward and continue to grow.

Using the ‘Stepping Stone’ development loan we enabled the borrower to transfer equity from the recently completed development to his new project without the need to wait for sales. This meant the new project could start earlier, and the developer would be able to take on more projects.  The borrower therefore grows by simply using the same capital more efficiently.

As COVID-19 slows the sale of completed projects it is also likely to generate attractive opportunities to purchase new sites.  The ‘Stepping Stone’ development loan ability to transfer equity from one project to the next is something that could keep projects flowing more easily. Importantly, it starts with really getting to know our customers.  That way we are not only providing creative borrowing solutions and mitigating credit risk, but we are helping businesses to grow and cycle forward.