Four things you need to know when borrowing with an alternative lender
Taking a development finance loan is no small feat. The property development game has many moving parts and it’s important to choose a lender who can support you and your property project with the right guidance and terms throughout the lifecycle of your loan.
Roxana Mohammadian-Molina, CSO at development finance and bridging lender Blend Network explains four things you need to know when borrowing with an alternative lender.
Alternative lenders have become the bread and butter of property developers’ everyday life. They are they able to offer more flexibility, speed and tailored lending solutions to borrowers.
But they are also often the only option when traditional lenders are unable to offer funding for deals that are not typical off-the-shelf projects and thus require outside-the-box thinking.
But whether you are a seasoned property developer and investor accustomed to borrowing from alternative lenders, or whether you are looking to dip your toes with an alternative lender, there are a number of key things to know when borrowing with an alternative lender.
Here, I explain five things that should always be at the top of your mind when you are trying to find an alternative lender you can trust to work with throughout your project’s lifecycle.
No two property projects are the same, and so the idea of one size fits all does not apply when it comes to property development finance.
Whether you have a piece of land and are looking to build a number of detached houses, you are looking to develop a commercial to residential scheme or you just purchased a terraced house and are planning to convert it into serviced accommodation, each property deal needs to be approached as a unique project.
Your lender of choice needs to be able to understand the scheme and put a developer’s hat on to be able to speak your language.
Typically, alternative lenders are used to dealing with these types of projects that are quirky, not off-the-shelf or in not-mainstream locations.
So, top tip one is to find an alternative lender who can get its head around what you are trying to achieve.
Flexibility for payments
Developing a property scheme means that while you carry out the work you won’t have income coming in.
Therefore, when you are searching for an alternative lender, another key thing you need to be aware of is how flexible they can to be with your payment schedule.
Will they be willing to roll up your interest? Will they be willing to give you a longer loan facility with no early-repayment fee if you repay the loan ahead of its maturity?
Typically, alternative lenders will offer a higher degree of payment flexibility compared to traditional lenders and to bridging companies.
For example, at Blend Network, if a borrower needs a 12-months loan facility (9 months to do the work and 3 months to sell or refinance), we would typically extend an 18-months loan facility where we would roll up the interest for the first 12-months of the loan and we would ask the borrower to service the interest for the last 6 months.
Time is money in the property game and alternative lenders tend to grasp this better than traditional lenders because alternative lenders tend to be staffed by experts who are or have been actively involved in the property game.
We often hear stories of loan requests taking months to be processed through traditional lenders and high-street banks and rejected at the last minute after a long process.
So, when you are searching for an alternative lender, another key thing you need to check is their response time and general customer service.
We always hear that you get what you pay for and this could not be truer when it comes to property development finance.
Let’s face it: borrowing with an alternative lender is more expensive than borrowing from your corner-shop high street bank but that is because you get what you pay for.
A seamless customer service, flexibility on payments, tailored lending solutions and speed in unlocking finance has a cost and that is what borrowers pay for when they decide to borrow with an alternative lender.
So, when you are searching for an alternative lender, it is not so much about shopping the market for the lowest interest rate but shopping the market about all those factors that you pay for.
Roxana Mohammadian-Molina is chief strategy officer at Blend Network, which provides development finance and bridging loans to experienced small and medium (SME) property developers across the UK regions.