Success Story: Property development and CBILS
£700,000 Property Development Exit Finance - with no interest to repay
TL:DR When the Covid crisis hit, one property developer struggled with cashflow when the property market ground to a halt and they were unable to sell their new development. With the help of the Rangewell Property Experts, they were able to secure £700,000 as a Development Exit Finance deal supported by the Government's CBIL Scheme, at 0.7% per month and nothing to pay back for the first 12 months.
How can you bring in large-scale funding without equally large scale repayments? At Rangewell, we found a solution that gave our client the £700,000 they needed - with no costs.
When the Covid crisis erupted across the world, there was little chance for most businesses to plan for it and the property sector, amongst others, has been hit particularly hard.
Not only was the entire property sector effectively shut down when the government forced the closure of non-essential businesses such as estate agents, but it also became impossible to view new homes or to arrange mortgages for a period of several months.
Now, even though the housing market has opened up again, those in it are suffering from a financial hangover. Homebuilders and developers have faced particular problems, with large-scale financial commitments supported by extensive lending. The inability to sell the property that they have already built means an increasing debt burden as interest mounts, as well as a cash flow issue.
The government’s provision of funding has provided a lifeline for many businesses - including property developers. But the scale of funding required can be a serious obstacle to actually securing it. With developers already borrowing heavily, taking on additional costs - even with the support of the government scheme - can prove problematic.
A challenging time
We were recently approached by a housebuilder who had built a small estate of upmarket homes which were ready for market at the beginning of the year - but which could not be sold.
Their usual bank, which had helped them with short-term cash flow issues in the past with similar deals, was moving very slowly because of lockdown and the business owners were concerned that their already-high borrowing would count against them.
“Basically, we were already borrowing to our maximum to buy the land and build the homes. It was not a gamble in any sense, because we had properties ready to sell in a location and a bracket where buyers are plentiful.
But when the lockdown was announced, we saw we had a problem, and a growing cash flow shortfall.”
Existing lenders needed to be paid each month, and each month that the homes stood without being sold meant a larger deficit. They called the Rangewell property team for help.
We looked at the figures and proposal and saw that the business would need around £700,000 as Development Exit Funding to get through the first months of lockdown and be ready to sell as soon as the property market was open again for business.
We saw the solution by structuring a deal based on a Bridging Loan with the support of the CBIL Scheme.
About Bridging Loans
Bridging Loans are secured on property like a mortgage - but, unlike a mortgage, they are designed for short-term use. The loan can be as short as one day and run up to a maximum of 12 months. Loan amounts start at around £25,000 and there is no maximum. Bridging Loans can be arranged within a matter of hours, and funds released in as little as 72 hours under certain conditions.
However, Bridging Loans are different from mortgages in two other important ways. They are designed for the short term, and therefore carry a higher cost.
No interest to repay
Getting the right arrangement for our client would be vital to avoid increasing the burden of debt that they were already facing.
With a large sum to finance and the usual high interest rates of a bridge, in normal circumstances, the approach would simply increase the client's debt and make their overall position worse with a temporary reprieve.
However, it is possible to arrange a bridging loan of 12 months or even longer with interest roll-up, rather than monthly payments. In other words, the interest is simply added to the principal amount, to be repaid in full at the end of the arrangement.
By using a CBILS arrangement, the need for our client to pay interest could be avoided altogether.
The Coronavirus Business Interruption Loan Scheme is a government-backed scheme to provide financial support to smaller businesses across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19 outbreak. The scheme can provide loans of up to £5million, but in most cases will be much less - and crucially, with nothing to repay for the first 12 months.
We know that, although mortgage lenders were not lending because of Covid, those who provide Bridging Loans were still lending. We contacted these lenders about our client's needs and were able to secure some offers in a matter of days.
With CBILS, the government guarantees 100% of the loan and there are no fees or interest to pay for the first 12 months. After 12 months the interest rate is at 2.5% a year.
“Rangewell found us the cash we needed to stay afloat at a time when banks and other lenders all seemed to have shut their doors. The expertise of the Rangewell team not only meant that we had a lifeline but if we are able to sell off the properties in the course of the next year, it should cost us nothing!”
Large-scale property funding
- £700,000 at 0.7% per month - all interest to be paid by government funding under the CBILS scheme
- The client had the funding he needed for the project - with nothing to pay back for 12 months
Rangewell finds the financial solutions that your business needs
The Rangewell service is easy to use - and lets you talk to a funding expert to get a solution that is planned around your business needs. Just call us and one of our Business Funding Experts will be able to discuss the options and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present.
It could prove to be a lifeline for your business.
We’ll search the entire lending market to find the most affordable solutions to your funding needs - and, in most cases, our services are absolutely free.