To say that bridging finance has come of age might sound like a cliché, but I genuinely believe it is true. Short-term lenders like us have moved away from simply offering bridging loans into a wide variety of flexible, bespoke products.
We now fund everything from residential and commercial bridging loans to residential conversions, ground-up housing developments and pre-let commercial schemes, and it stems from traditional lenders being more cautious than ever.
Since the 2008 crash, traditional lenders have continually retrenched their position. Today, the clearing banks have little interest in the market below £25m, and their shedding of staff means they no longer have the ability to transact smaller loans. Specialist lenders like us can now work in the areas that mainstream lenders used to work in, filling the void they have left.
It is a huge opportunity – but to take advantage, we have had to adapt, and we continue to evolve. At Alternative Bridging, we still offer simple bridges, a relatively generic transaction that works in a lot of cases. But crucially, we are more flexible than ever before in how we structure our loans and we are always ready to launch new products to respond to the demand from borrowers.
In March, for example, we launched an overdraft scheme, which has proved even more popular than we expected. We launched it for those that want what used to be called a ‘hunting licence’. They have the base security sitting with us, they go to an auction to buy a property and they can move faster than anybody else because they know, having established the arrangement, they can access their money within 24 hours.
Finance on tap
Equally, for those that are seeking working capital, having established the loan, they can draw down and repay, again and again, only paying interest when funds are in use. Property finance on tap!
What we had not expected is how popular the scheme would be with developers. They can secure a loan against a base security that is unlikely to be traded quickly and use the money to fund another project. Because we are not funding against that second scheme they do not need to ask us about project managers, quantity surveyors or approving certificates – they can just get on with their job. We’ve had a lot of traction from that market.
From next month, we will be offering five-year interest-only term loans, which is one thing our introducers have come to us and really demanded. Again, it is a reflection of the reluctance of traditional lenders to lend on small and medium lot sizes, and it is a gap we are happy to fill. Furthermore, borrowers are becoming more sophisticated, working on complex assets with issues that potentially take longer to resolve. Buildings that are part-let are one example – we can help them with the security of a five-year term loan, with deferred interest if necessary, where more traditional lenders won’t or can’t. Our system works for borrower and lender alike – underwriting for people by people, not tick boxes and algorithms!
It is a more satisfying way to lend, too. We’ve often provided incubation-style lending in the past, and just as the deal has started to get interesting, we need to be repaid. Now, we’ll be there all the way through until the asset matures, and longer if invited.
Residential development, in general, is now a larger part of our book than it was five years ago. We’ve moved on from just doing bridging for buy-to-let products and we have enormous flexibility with our own money and our lines of funding, which means we can tweak, change and move around the facilities to make them work for the borrower. In other words, we deal with it as a development funder, not as a bridging lender trying to shoehorn a development facility into a bridging loan structure.
It is true that no two loans are alike and, to that end, we are working more closely than ever with our borrowers to ensure they get the funding they need, and we will write a bespoke facility to pair with their requirement. We make a huge effort to understand the background of the transaction, to understand the ways the borrowers want it to work and to match those needs to the funding. Short-term funding is never cheap, so we believe it should always be as effective for the borrower as possible. The money must fit the deal, not the other way around, and if you try to force a square peg into a round hole then the borrower is unlikely to work with you again. The borrower we are looking for is someone that makes money with our money, not just somebody we save from catastrophe.
Although we are a short-term lender, we enjoy focusing on borrowers’ long-term objectives. We do not want our borrowers to sign a tenant just to keep us happy – if they need to wait longer to get the ideal tenant then we are happy to work with them. Anything that is better for the borrower is better for the lender in the long term, and that is not something that all new lenders understand.
Our flexibility also gives borrowers more opportunities in the market. If you are a national housebuilder with a 200-home scheme, you can talk to your capital markets team and know your funding is available. But there are many opportunities below that level, which borrowers can access if they have the right funding. If you are working with a flexible lender, you are able to access schemes you would not normally look at. We are helping our borrowers strike deals that they would never have thought possible before.
Our deep understanding of transactions comes from our group having been lenders for more than 25 years and the expertise of our staff. We are slightly different from most lenders in that our executives come from property backgrounds rather than pure finance backgrounds. They are surveyors and property bankers and they bring a deep knowledge of the market. We think of them as property experts using their expertise to lend money, rather than lenders who have simply stumbled on property finance.
We are always looking to expand our expertise. Opening an office in Birmingham has taught us a lot while allowing us to expand our client base. We are currently looking to open an office in the north so that we can better serve borrowers north and south of the border.
”Our system works for borrower and lender alike – underwriting for people by people, not tick boxes and algorithms!”
Short-term lenders like us will continue to match the requirements of borrowers and you can expect to see more new products from us in the future. Products that support development are going to continue to mature. We now offer refurbishment/development to term loans, which I think will become more and more popular, particularly a hybrid option where it is up to the developer how much is sold and how much is retained for investment.
Products that serve the rental market will also become ever more important. The UK’s obsession with home ownership has now abated, but the rental market cannot fully mature without money from lenders like us.
Because of these trends, our business looks very different to how it did five years ago. We have fewer one-off transactions and we have moved towards a multi-transactional style that gives us a completely different feel. With traditional lenders continuing to retreat into their shells, it is short-term lenders like us that will provide the flexibility and forward-thinking that so many investors and developers need.
We believe it is crucial to listen to our borrowers and respond carefully to their needs. If you are a borrower and not dealing with people like us, your hands are tied and you probably will not be successful in today’s market. We are no longer just bridging lenders; true to our slogan, property finance is our business!
Alternative Bridging is a principal lender with a 25-year track record and an experienced, dedicated team of property finance professionals.
Our vision – to be alternative by name and culture, finding solutions, not problems, being fair, transparent and flexible. Our USP is individually underwritten loans by people for people, not tick boxes and algorithms.
As the listening lender for the property industry and SME market, we work with our introducers and borrowers to convert opportunities to loans, swiftly, simply.
PW Perspectives: industry responds to changing needs
- Currently reading
Alternative Bridging works for borrowers and lenders