The Government’s ‘Builders Finance Fund’ – experiences so far?

One of our specialist development lenders was recently critical that developers were not taking advantage of the Government funded ‘Builders Finance Fund’.

This was set up in April 2014 and ‘refreshed’ in mid-2015, and will expire in 2017. The usage has been way below expectations, with only a relatively small amount of the £525m allocation actually taken up. 

This is perhaps no surprise. In common with earlier Government finance initiatives such as the Enterprise Finance Guarantee (EFG) scheme and, before it, the Small Terms Loan Guarantee Scheme (SFLGS), there seems to be a lack of awareness of what’s on offer, obstacles in the form of complexity, and uncertainty about procedure.

The Scheme is aimed at any type of organisation building between 5 and 250 units, but it is exclusively for SME’s when a development has between 5 and 14 units.

Loans are fully recoverable (i.e. it isn’t grant funding) and are intended to ‘address cashflow issues or provide an equity stake’.

I’ve gone through the ‘Prospectus’ document and remain unsure myself about how this scheme fits in. It appears to potentially replace senior bank debt (with a minimum lend of £200k but no upper limit) but the security arrangements and means by which interest is calculated seem to be a bit of a ‘pinning the tail on the donkey’ exercise.

It would appear that the maximum lend would be 50% of project costs – which most lenders would provide anyway if all the circumstances were right – and there is a long list of due diligence requirements which would appear to make the application process as demanding, if not more so, than applying to a High Street bank for development finance.

I’ve taken some ‘soundings’ from some of our developer clients and either they hadn’t heard of the scheme or they had dismissed it as ‘too complicated’.

It would be interesting to hear from any users of the scheme or developers who had tried to get an application agreed.