Lending lockdown made space for alternative lenders

Roxana Mohammadian-Molina is chief strategy officer at Blend Network

The ‘lockdown on lending’ during the COVID-19 pandemic – when most banks focused on serving their existing loan books – provided a perfect opportunity for alternative lending institutions to gain market share and build relationships with borrowers in need of funding.

Nimble and agile specialist lenders are quietly disrupting the property lending market and dynamically changing the finance landscape, with a little help from technology.

Nimble and agile

‘Where do you go when the bank says no?’ is a growing complaint among property developers, especially small to medium enterprise (SME) developers and small construction companies often left out of the traditional funding channels.

This is partly because traditional lenders’ credit criteria has continued to tighten in recent years, even before COVID-19 meant many stopped lending entirely. Increased regulations and capital adequacy ratios has also restricted many banks’ lending capabilities.

Amid tighter credit conditions and announced restructuring at traditional lenders – for example, HSBC recently announced plans to cut 15% of its global workforce – alternative lenders and peer-to-peer (P2P) property lending platforms have seized the day.

These nimble and agile lending institutions, born out of the global financial crisis a decade ago, have thrived by helping property developers unlock funding for their projects quickly and efficiently.

For example, last year, London-based P2P property platform lending Blend Network saw a 104% increase in lending, providing liquidity and speed amid the pandemic. Many other alternative lenders have seen a similar increase in lending while also dynamically changing the finance landscape.

Unlike in 2008, traditional lenders do have liquidity, but they lack the appetite to lend. Furthermore, the COVID-19 pandemic and traditional lenders’ obligation to administer the Coronavirus Business Interruption Loans Scheme (CBILS) represented a distraction that sucked up resources at traditional lending institutions, leaving them under-resourced to deal with non-COVID lending.

This is one of the reasons many property developers have turned to alternative lenders for their funding needs. At Blend Network, we lend development finance of £150,000 to £5m to SME property developers, and were able to support many of those borrowers left in the cold by traditional lenders at a time when the strength of the property market meant they were able to source great deals and development schemes.

2020 was a perfect opportunity for alternative lenders and P2P property lending platforms to show their worth. It proved how these nimble and agile lending organisations can support property developers to build the homes the country needs while serving as a lending arm to traditional lending institutions helping them originate deals and deploy funds.

In other words, the events of the past 12 months have proved that alternative lenders are a serious contender to fill an ever-widening funding gap.

Not off the shelf

Alternative lenders’ main appeal is their specialist focus in niche markets, a more flexible approach to lending and their ability to lend on non-off-the-shelf deals. This is particularly the case for property development finance loans, where the unique nature of the projects means no two deals are the same and risk factors such as uncertain exit dates and values requires a more tailored lending approach than what traditional lenders are able to offer.

Alternative lenders in the property space have been able to adapt quickly to respond to the growing demand. At Blend Network, we have funded landmark schemes, such as the conversion of a former shoe factory into 24 apartments in Northamptonshire or the conversion of an office building into 27 apartments in Stafford.

So, watch out for the nimble and agile alternative lenders, which can and must be a catalyst for change in the lending market.