A new concept in development finance has ambitions to make the process of securing funds on the most favourable terms quicker and easier. Professional Builder’s Lee Jones talks to one of the founders of Brickflow.
If we are to achieve the ambitious targets that the government has set for housing completions then a greater contribution from SME building firms is required. That’s a statement that a majority in the industry would now endorse, but the trickier proposition is laying the groundworks that will make it a reality. Whenever contractors are themselves consulted as to what they perceive to be the barriers to embarking upon a new build project it generally elicits an all too familiar response. Land availability, planning, and finance are the perennial problems – but it is in the last of these that Brickflow believes it can make a difference.
One of the enduring legacies of the credit crunch has been the emergence of alternative lenders beyond the traditional high street providers, but that’s not necessarily a reality that has permeated down to a small builder looking for finance on a development, who will invariably gravitate towards what they already know. Moreover, more choice can itself be confusing, especially for those who are instinctively more comfortable with bricks and mortar than banking.
“Every development lender has its own method of calculating finance,” explains Ian Humphreys, one of the founders of Brickflow. “As a result, if a builder makes an enquiry about an individual site to ten separate lenders, they’re likely to get ten different answers. As well as that, given the volume of players there are in the market, finding a financier that will offer the best possible terms would involve a huge amount of work, which is not necessarily feasible for each individual project.”
Brickflow was launched in October 2020 as an online resource, where developers can more easily match with the right lender. On it a builder can upload all the relevant site details, including land and build costs, build terms, and Gross Development Value (GDV). An algorithm will then curate a short list of the most appropriate lenders, ranked in order of the cheapest to the most expensive.
Continues Ian: “In the first instance, Brickflow represents a useful due diligence tool for the early stages of a development and can demonstrate what can actually be realised with relatively modest initial deposits. When approaching your bank for finance on a scheme, for instance, you could be asked for a 30 per cent deposit, when in reality you might only need to pay 10 per cent. That’s one of the big advantages of our platform – it will often reveal that you can do much more with less.”
“We had an example recently where a Brickflow user had already made contact with their existing lender, who had asked for a £450,000 deposit on a scheme where the GDV was £2.85 million. Having enquired on our platform, and subsequently picked up the phone to us, he had the terms within 24 hours, the loan application completed the same day, and his deposit was reduced from the initial £450,000 to £260,000, with an interest rate that dropped from over 8 to under 7 per cent per annum. That client actually reached out to us again quite recently because they’re now using the money they saved on the first deposit to develop a second site, which will, of course, considerably increase their profit margin.”
It is that kind of effective and efficient equity deployment that Brickflow champions, but by the same token it can also identify which sites simply won’t work for the borrower’s circumstances, as Ian reveals: “In our experience, we find that potential developers can waste a lot of time investigating sites that they’re simply not in a position to mobilise. With Brickflow, they could enter the details of a number of schemes and then quickly discount those that are simply not viable.”
The service doesn’t end there, however, because the platform is on hand to provide support throughout the process. Many builders, particularly if they are relatively inexperienced in property development, might not be that confident when approaching a lender. As well as opening up new horizons beyond the high street, this new online service can leverage the expertise of seasoned finance professionals in ensuring that they present themselves in the best possible light. In addition, as a tech platform, it is in perfect step with the adoption of digital tools that the pandemic has accelerated, and can accrue some significant time-savings in securing a decision.
If an investee is approaching a number of finance providers individually then providing all the necessary information in the form they require could be an onerous task, but Ian outlines how here again Brickflow can help. “Once those initial searches have been completed, we can guide the applicant through all the information that a lender requires to make a credit decision, which is then added to the platform as their developer profile. A lender can then log in, view that profile and make an informed decision on whether to back the builder and their scheme very quickly. We had a recent case where a developer acquired credit approval on a deal within just four hours of uploading it onto the platform, which is something that could well take someone two months to achieve.”
Brickflow currently has 18 active lenders on its platform, with those that it has chosen to work with already geared towards servicing the SME sector. The minimum loan that can be achieved through the service is £150,000 rising to a maximum of £100million. “We find that many relatively inexperienced developers go to their bank because they’re the organisation they’ve always dealt with,” concludes Ian. “What we want to do is empower SMEs not just to find finance but the right finance.”
For further information on Brickflow visit https://brickflow.com/
