Funding opportunities for residential developers and construction contractors

The Government has ambitious plans for residential development over the next five years, and SME developers and the contractors that work with them are critical in creating a diverse and resilient housing industry.

Whilst questions remain whether the government will achieve its 1.5 million new homes target, there are opportunities for SME developers and contractors to grow, leading on smaller and more challenging sites. SME developers can address viability issues on sites that larger developers simply cannot.

A key part of the viability issue is access to affordable funding, and here there is good news.

Interest rates, having remained stubbornly high, are on a downward trajectory reducing the cost of debt funding. It is a good time for developers and contractors to review and restructure debt funding and to once again reconsider bank funding as a future source of capital.

Many developers and contractors continue to carry Covid-era funding, each with varying terms. Bounce bank loans, with a fixed interest rate of 2.5%, continue to look particularly attractive for those businesses that have extended borrowing terms to the maximum 10 years, a right of the borrower under this scheme.

Meanwhile, most CBILS/RLS loans, typically structured over five-year terms, have now been repaid, creating a noticeable gap in lenders’ commercial lending portfolios that they are eager to fill. It has created an environment where the leading lenders are actively seeking new lending opportunities to replace gaps in their lending portfolios and utlising the Government backed, Growth Guarantee Scheme where appropriate.

There is currently an oversupply of lenders with capital to lend. It has created a highly competitive lending landscape for businesses with a strong financial position.

Home Building Fund

The government too has stepped in with its Home Building Fund, offering lending and investment routes designed to address the financing challenges SME developers can face.

Its supports includes:

• Development finance, with financing between £250,000 and £10 million available to cover up to 80% of development costs for schemes with five to over 100 homes.
• Complex real estate finance, offering senior or mezzanine lending solutions for complex residential schemes and infrastructure.
• Equity and partnerships, with Homes England able to make direct or co-invest equity investment to attract new capital into the sector.
• Lending alliances, working with existing lenders offering finance to expand existing risk appetite and new products into the sector.

Strategic approach needed for lending

Developers and contractors need to approach all lending in a strategic and structured way.

Lenders will want to see a detailed business plan with forecasts over the borrowing period. It is something the dedicated funding team at Kreston Reeves can help prepare. The team also enjoys strong relationships with many funders, so where one proves unresponsive or uncompetitive, we can explore other funding options.

Now is a good time for developers and contractors with existing bank debt or looking for new and additional growth funding to consider bank funding once again.

Please contact us today for more information, advice and guidance on funding opportunities based on your specific circumstances.