2020's ‘Lockdown On Lending’ Saw the Consolidation of Some Alternative Lenders
Paul Watson is the Head of Origination at Blend Network. In this article, he discusses how syndicated lending platforms thrived during the COVID-19 pandemic.
2020 was the year when the ‘lockdown on lending’ meant many banks focused on serving their existing loan books, leaving many property developers with great deals out in the cold. Paul Watson, Head of Origination at development finance lender Blend Network, explains how this allowed alternative lenders, especially syndicated property lending platforms, to step in and fill the funding gap left by traditional lenders while consolidating themselves as the go-to funders for many property developers looking to move fast and get funding quickly.
Prime Minister Boris Johnson’s address to the nation on Monday 23 March 2020 outlining strict measures to control the spread of COVID-19 was no doubt a monumental moment for all of us, but I can’t even begin to imagine how it might have felt for those thousands of property developers with deals in their hands going through funding for their projects, trying to purchase a site, agreeing funding to develop a site, refinancing their projects or even waiting for drawdowns from their pre-agreed facilities.
Yet that was only the beginning of what was to come over the following few weeks and months when lockdown on people also meant lockdown on lending. Through March and April many traditional lenders and high street banks reacted by re-evaluating their loan offerings, reducing their LTV offerings and their maximum loan size. Even for those developers with agreed funding facilities, releasing drawdown funds became really complicated, mainly due to many surveyors not working, and delays getting building regulations signed off due to the added difficulty in arranging site inspections.
But against this backdrop of ‘lockdown on lending’ from the larger players in the market, some smaller lenders in the alternative lending space, especially syndicated lending platforms, decided to stay open for business and continue to actively lend. Furthermore, due to their nimble size and more flexible setup, these lenders were able to adapt much faster and adopt new technologies to overcome challenges such as site visits and inspections. This is when syndicated property lenders’ FinTech background came in handy as they were able to adapt much faster to ensure the minimum disruption to the borrower on things such as releasing drawdowns.
Maintaining liquidity
There are many reasons that allowed alternative lenders to keep lending amid the pandemic, but perhaps the most important reason is liquidity. Indeed, alternative lenders and syndicated lending platforms get their funding from private sources and thus do not rely on the liquidity in the overnight markets. For example, at Blend Network we get our funding from a mix of institutional investors, family offices, high net worth individuals and also retail investors. This well-balanced and diversified investor base enabled us to keep our liquidity during COVID-19 and in fact increase it. As explained in an article in Bloomberg, ‘ultra-rich families with cash on hand pile into private debt’ during the pandemic (link).
We also saw this at Blend Network: following the initial shock, liquidity increased due to what was feared as unsustainably high equity markets when global equities rebounded sharply since the end of March. As a result, investors looked to diversify away from the equity market and their search for yield led them to private debt, where they could use syndicated property lending platforms as origination arms to deploy their cash into selected property deals.
The role of technology
Technology was the other great enabler during COVID-19. At a time when non-essential businesses had to close to the public, FinTech companies and syndicated lending platforms thrived by allowing users to do everything online. This is an area where traditional lenders’ heavy legacies and dependency on manual operations hindered them.
Blend Network is a peer-to-peer (P2P) property lending platform that provides development finance and bridging loans from £150,000 to £5,000,000 to experienced SME property developers and small construction companies. More information can be found at www.blendnetwork.com. Blend Loan Network Limited is authorised and regulated by the Financial Conduct Authority (Registration Number: 913456)