One of the reasons why small and medium-sized developers are so successful is their ability to adapt and change their strategy in response to the demands of homebuyers and renters, and the environment around them.
I don’t think anyone can argue that the current environment for developers is particularly challenging at the moment, with supply chain issues and labour shortages delaying the completion of projects and the cost of raw materials continuing to climb.
In response to these delays and rising costs, developers are increasingly turning to development exit loans to help them make the most efficient use of their capital.
There are a number of benefits for developers in taking a development exit loan. They are useful when a developer is nearing the end of term with the current lender but do not want to have to sell their units under pressure, or have to fork out for extension fees with their existing lender. As well as providing this breathing space, a development exit loan can also be used to release the money to finance other projects.
Another approach developers are taking to beat the rising cost of raw materials is to buy them as soon as possible, ahead of any future potential price rises. At Alternative Bridging Corporation, our experience is that it can take up to three months on a development from drawing down the first finance to starting construction; with inflation now in double digits this can have a huge effect on the bottom line.
Of course, with all bridge loans, there is an application process that has to be completed, even if you’re a return customer, which means time spent while prices continue to rise. That’s one of the many reasons why we came up with the Alternative Overdraft. It offers a flexible drawdown facility that provides liquidity whenever a client needs it. The facility can be drawn upon and repaid time and time again and provides the perfect overdraft for real estate, property auctions, site acquisitions or to fund work-in-progress. There’s only one initial application process; after that, nothing, so no delays.
A flexible overdraft facility like this enables developers to secure the finance on existing assets, letting them rapidly drawdown to pay for raw materials when they start a scheme, paying back the balance on the Alternative Overdraft as construction progresses and further payments on the development finance are released.
Successful developers know how to adapt to the environment and, in the current climate, tools which allow them to keep tight control of costs, manage delays in terms of refinancing and minimise the need to sell properties under pressure are welcome at the best of times. It’s no surprise, therefore, that development exit loans and our Alternative Overdraft are prevalent at present.
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