24 Nov 2016

An explanation of peer-to-peer funding for developers

David Brown, Managing Director at Folk2Folk, a peer-to-peer lending company, explains how peer-to-peer finance is supporting property developers.

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As a nation of home-builders, our love of bricks and mortar is second nature, but for those building the properties, developers are increasingly experiencing issues with accessing the funds they need at the time they need them from the traditional banks. We are seeing a rise in reports highlighting how banks are reducing the lending they provide to property developers to de-risk their balance sheets.

From 2014 to 2016, the level of funding from banks to property developers has more than halved, falling from just over £32b to just under £15b. This means property developers are now turning to alternative sources to access funds so they can carry on building.

Fortunately, the rise of peer-to-peer finance (P2P) and online alternative lenders is helping to plug that gap. P2P finance is enabling property developers to access the right level of flexible finance to stay in business, at the same time delivering a risk-adjusted return to individuals that choose to invest and lend funds through P2P platforms.

P2P finance over the past decade has fast become a mainstream way for businesses to access the finance they need as banks become increasingly unwilling or unable to provide capital to property developers. As the birthplace of the sector, the UK is one of the most advanced and diverse alternative finance markets in the world. To date, UK P2P platforms have lent over £8b in total with over £3.5b going to various businesses, including the property development sector.

Platforms in the UK offer a variety of different types of finance. These include secured loans from Folk2Folk to bridging finance, unsecured business loans, specialist property development loans and invoice trading from other platforms.

In most cases providers, like Folk2Folk, can act much quicker than traditional banks by being more flexible in their application approach. By combining an online application with a more holistic personal approach, by considering the property asset as security, the applicant’s business history as well as the reputation of the applicant through professional service checks with solicitors and accountants, platforms are able to provide a decision in a matter of days with funds following a few weeks later. This is much quicker when compared to the banks, which can take weeks for a decision and then months to release the funds. The combination of speed, flexibility, personal approach, the competitive rate and better level of customer service means property developers are increasingly thinking P2P first and bank last.

Additionally, the Government and industry bodies are very supportive of creating a diverse mix of funding options for businesses, as we will see mandatory referrals from banks to alternative providers come into force to provide finance solutions to SME customers they are unable to help. This increasing level of collaboration between the banks and alternative providers is very much welcomed, as the main aim should always be on helping the business customer access the right finance for them. We believe this will ensure that UK businesses, such as property developers, can get the right finance that suits their requirements to enable them to get on and build.

We encourage all property developers out there that might be looking for finance to do their research on the types of loans offered by alternative providers, as they do vary on LTV rations, loan terms and funding levels available. In most cases, we believe business can get a great deal through lenders like Folk2Folk due to the simple, fast and flexible approach we offer compared to their traditional bank or going through a broker.

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