Despite the continuing pandemic, there’s still a real appetite for new development projects.
Recent analysis indicates things are set to stay this way for a while:
The increased demand means there are a lot of developers looking for funding for projects.
That's why we spoke to Property Elevator's Helen Chorley and Head of LandFund, Oliver Symons, in our recent webinar to discuss crowdfunding and other alternative finance options.
Alternative finance can be any form of "non-traditional lending", such as peer-to-peer lending, crowdfunding and blend networks.
Crowdfunding helps developers to promote specific projects through a public platform, reaching a wide range of investors.
"Rather than there being an investor and a developer, there might be 30 or 40 or even more investors"- Helen
When Covid hit, some traditional lenders didn't have the liquidity in the market to finance developments. So, many developers had to turn to crowdfunding, with appetite changing almost overnight.
Helen believes that crowdfunding offers developers more freedom. Similarly, investors can judge crowdfunded projects more holistically too, rather than defaulting to the tick-box risk exercise of traditional lending.
"Each deal is evaluated on its own merits with crowdfunding."- Helen
For a long time, crowdfunding has been misrepresented as a last-minute resort for developers when, in actual fact, crowdfunding can be a great way to raise your public profile.
“I see a good few developers who crowdfund very, very regularly. I look at them and think that they’re forward-thinking, innovative, they’re able to raise finance.”- Oliver
With so many investors involved in the crowdfunding process, there is a rigorous due diligence process. And with increasing FCA regulation, developers and investors get an added level of reassurance.
“The relevant security is offered, which obviously the investor benefits from and is a real appeal for me.”- Helen
Most crowdfunding platforms facilitate monthly updates from developers, but it’s still important that as the developer you’re providing the right amount of detail on the project’s progress.
“Getting that communication right across all of those people can be challenging. But, generally the platform will help with that.”- Helen
For both investors and developers, finding the right crowdfunding platform is key. And not just the platform, but the team behind the platform.
You need to pick a team you can work well with and who offer sufficient support, particularly when it comes to communication.
As with traditional lending, there’s a whole host of questions you should be asking to make sure it’s the right option for you, such as:
The answer to these questions will help you build a picture of whether the platform will be a good fit for your needs.
Both Helen and Oliver agreed, that based on current growth trends, the future of alternative finance is looking very good.
The growing traction of alternative finance is likely to drive competition in the lending space. This will ultimately lead to lower prices and higher quality service, making alternative finance a great option for a lot of developers.
However, it’s worth noting that crowdfunding is not for everyone and requires a certain type of personality. Namely, a willingness to carry out your development journey on a public stage and have your successes and failures laid out for all to see.
But, as an increasing number of developers are deciding that now is the right time to give alternative finance a try, it’s definitely something to watch.
You can watch the full discussion with Helen and Oliver on the video below. So grab a coffee and a notepad, and see all the insights they had to share: