Over the last year, I’ve had the opportunity to discuss the future of development finance with a host of SME developers.
Some of these conversations were pre-Covid, some during the spring lockdown, and some since. Some were with smaller entrants into property development, some were with seasoned professionals delivering 1000+ units a year.
I spoke to lenders too, from many different sectors of development finance – traditional banks, challenger banks, P2P lenders, and government-backed institutions all offered their thoughts.
I was surprised at what I found.
From my research, developers and lenders both have exactly the same priorities – what I’ve called the Three Ts.
Developers and lenders even rank the Three Ts in the same order of importance. Yet, there is a disconnect between the processes of the two parties that severely impinge on all three priorities.
It’s a rarity to see both parties in a transaction so clearly aligned, yet so inefficient in delivery.
Why does this happen?
Closed. Manual. Repetitive.
Nobody wants this inefficiency, but we run the risk of assuming it’s inevitable. The truth is – it doesn’t have to be.
In fact, a huge part of the inefficiency comes not from the sector, but from outdated systems.
How are they outdated?
They’re closed – The methods of sharing information are slow and don't inspire openness and trust. The way documents are sent or stored, requests for further information are made, and updates of application progression provided are dated and restrictive.
They’re manual – The tasks that need to be completed when undertaking a loan are often laborious and limited. Appraisal, finding the right lender, or due diligence on a loan application all take time. The information is all available, but it’s held in different places and needs to be gathered and validated – whether that be £/sqft comparables, the best terms, or information on a developer profile.
They’re repetitive – Developers and lenders often double up on each others’ work. Developers send information in multiple formats, which lenders then need to break down, format, input, and validate.
How can tech companies help?
Standardisation. Communication. Data.
There’s a lot that can be done to simplify the process. It’ll require new tech. New methods. But most of all?
It’ll require a new attitude.
With the FinTech revolution in full flow, there have been dramatic changes in retail banking. Processes have finally started moving faster. The market has become more open – due diligence is easier, accounts are created almost instantly, and loans agreed much sooner.
However, the same impact has not yet been seen in the development-lending space.
The reason why we haven’t seen that impact is something we’ve been thinking about a lot here at LandTech. We know a thing or two about the potential for tech to speed up archaic processes.
After all, LandInsight has sped up the process of finding and assessing sites.
And LandEnhance has sped up the planning application process.
So maybe there’s something to be done here, too…
We want to do away with those outdated systems, bridge the gap between developers and lenders, and supercharge everyone’s results.
Oliver is leading the charge on the next LandTech product, looking into the world of development finance. He loves an adventure – he once bought a 1970s camper van to travel around Australia, and bought a boat off eBay to teach himself sailing. His family home is in one of the most notorious crop circle hotspots in the world (though he claims to know nothing about them).