A Different Road – Why Alternative Finance Can Offer A Better Borrower Experience

As Peter Graham knows from personal experience, the completion of a finance deal can never be taken for granted until all the details have been finalised and the contract signed.  

“We were at the 11th hour with a traditional lender and due to something unforeseen – it was the technicalities of their own policies – they severely reduced the amount that we could draw down in the first instance.  

Peter is managing director of Chris James Construction and, as he recalls, this last-minute change to the deal represented a serious setback to the project in question. What’s more, his company had already paid out money upfront. “We had paid our commitment and legal fees,” he recalls.

 Chris James Construction’s experience is by no means unique. Among the “bad experiences of lending” reported by business owners and managers, one of the most familiar is the financial deal that doesn’t come off, despite all prior indications suggesting that it will. A typical scenario might involve a company applying to a bank for finance and being given a warm welcome by the relationship managers and specialist staff. Negotiations commence and go well over a period of weeks. Then at the last minute, the deal is quashed or modified by the independent credit committee. As a result, valuable weeks are lost. The borrower can look elsewhere but that means starting from scratch. Not only are there no guarantees of success a second time around, but any time wasted potentially prevents a project moving ahead on schedule. And that can be costly. 

“In our industry, time is money,” adds Peter. 

 

Chris James Construction was fortunate in this case because it was able to then contact The Route – Finance and move from initial application to completion in just four weeks. A delay, certainly, but not one that threatened the company’s plans.

And it’s an experience that illustrates one of the reasons why Alternative Finance providers have made such a big impact on the business funding market in a relatively short space of time. Traditional lenders – and in particular the high street banks – are prepared to lend to small and medium-sized businesses and they continue to collectively dominate the market. But in the wake of the great financial crisis, they also tend towards conservatism in terms of their lending policies. That can result in deals falling apart at the last minute.  Against this backdrop, Alternative Finance platforms have stepped into the market, offering more flexibility.  

Malcolm Officer, a director at property development company Glenisla Developments has seen the market from both the demand and the supply side, having previously worked in corporate banking. Citing the property market in particular, he says banks have stepped back. “I worked with banks for 25 years, in commercial and a lot of property funding. In 2007/2008, there was, as we all know, a massive property banking crash. And since that time, in my view, the banks have restricted their lending a lot with property development finance. They’ve gone from lending 100 per cent down to probably 50 per cent or less,” he says.  

A Willingness To Fund Projects

From his perspective, Alternative Finance providers have demonstrated a willingness to fund projects – and by no means risky ones – that banks would shy away from.  

“So alternative funders, similar to The Route, have come out in the marketplace. And they’re very important because they’ve stepped into the shoes of the main high street banks. They have 90 per cent plus of the market, but they’re not lending on more challenging transactions. That’s one of the reasons that a secondary market has become more important,” he says. 

But it’s not the only reason: Alternative Finance providers are not only providing funds, they are also offering superior customer service – not least in terms of executing rapid but effective due diligence, which in turn enables them to make fast decisions on whether to green light a loan. 

Peter Graham cites his experience with The Route. “ Within a couple of days you’re getting a yes or no if it’s viable and providing the financials and other areas stack-up we know we’re good to go, so for us the biggest thing that ticks for Route at the moment is timescales,” he says.  

And as Malcolm Officer asserts, The Route does not restrict itself to simple deals.  “I introduced other borrowers to the Route because they funded my own development in Scotland. In my view, The Route was the perfect match for these borrowers and they weren’t straightforward transactions to complete. The Route looked at the values of the properties and their exit strategy and decided to lend on both deals and both are going very well,” he says.  

The corporate finance market – in the property market and more generally – is changing, with more players coming in, many of them platform-based. The Alternative sector is thriving, not just because it offers another source of funds, but because lenders, such as The Route – Finance, are also providing innovative, responsive and reliable service.  

To find out more about The Route – Finance’s Private Debt Platform, call 020 3141 9040 

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