Help for SME Developers

By Noel Meredith – Executive Director, United Trust Bank

Recent research from the NHBC Foundation paints a worrying picture for the future of small house builders in the UK. According to their report ‘Improving the prospects for small house builders and developers’, the number of smaller house builders, and by that they mean companies building no more than 100 new units per year, has seen a decline from a peak of around 12000 companies operating in the late 1980’s to just around 2700 in 2013. The recent recession and ‘credit crunch’ have certainly put many SME builders and developers under pressure and obtaining finance is flagged as the second biggest challenge faced by small house builders, the first being the planning process and related conditions.

The UK’s housing shortage has been well publicised and it’s fair to say that the planning system is in need of a major overhaul. The time it takes for approval to be granted, and the subsequent ‘Section 106’ and Community Improvement Levy (CIL) conditions attached to some applications are seen as serious barriers to smaller companies. Some survey respondents suggested that schemes that 20 years ago may have taken 12 weeks get approval can now take two to three years.

Although there’s little banks can do to influence planning policy we can certainly help when it comes to what small developer’s highlighted as their second biggest challenge – obtaining finance. Although the decline in smaller house builders has stretched over three decades there was a pronounced and distinct drop in the number of new home registrations by small house builders from 2007 onwards. The credit crunch and subsequent recession hit all developers but it appears that the large building firms have been able to seize upon the economic upturn much more readily than the smaller players. The significant land banks previously built up by larger builders will have enabled them to get building again quickly when market conditions improved. However, more importantly the greatly reduced appetite for development finance shown by some major lenders together with some withdrawing from the sector altogether, has made it more difficult for smaller developers to get project backing.

50% of small builders who took part in the NHBC survey have found banks still reluctant to lend to small builders and 39% found that a move to centralised decision making and the loss of a local banking relationship was a serious impediment to business. It’s here that I have to make an important point: all banks are not the same. Whereas many lenders, including the High Street giants, have decided that lending to smaller developers no longer fits their rather more cautious post-crunch credit criteria, others such as United Trust Bank, have stepped in to fill at least some of the void. United Trust Bank has increased its development finance lending every year for the last five and by the end of 2014 will have funded small developers to the tune of around half a billion pounds over that period with loan sizes ranging from around half a million to over ten million pounds.

Another way specialist lenders have differentiated themselves from the High Street banks is by offering a service which aims to build closer relationships with clients, not keep them at arms’ length behind layers of automation and bureaucracy. Developers appreciate the opportunity to meet face to face with our development finance team to discuss funding options. With each proposal we tailor a finance package ideally suited to the circumstances of the borrower and the project. We make quick decisions and we stick to them and from the very start our property development directors and managers are on hand with help and guidance based on many years of industry experience. We regularly meet with clients on-site throughout the build and because we know things don’t always go to plan in construction our flexibility allows us to work through any challenges which may come the developer’s way.

In conclusion, developers may have found, and indeed still be finding it tough to secure funding for projects from some of the better-known lenders. However, although the credit crunch caused some banks to draw back from development finance, others, like United Trust Bank, have seen it as an opportunity to extend their services to even more customers. Once smaller developers experience the positive approach, the bespoke service and the real customer focus offered by a specialist development finance lender, many will find they never have to go back to the High Street again.