28 | CONSTRUCTION & DEVELOPMENT
Four Common Funding Pitfalls for SME Residential Developers CEO & co-founder of Hilltop Credit Partners, Paul Oberschneider talks about the common mistakes made by developers when securing funding for projects
F
or SME developers, securing funding has been needlessly frustrating, timeconsuming and expensive for too long. I often speak to an exasperated developer who’s spent 6 months managing hundreds of emails, sitting through hours of meetings and has nothing to show for it. The funding process doesn’t need to be like this. With robust government housebuilding targets and an alternative lending wave, SME developers should be able to move quickly. Avoiding these 4 pitfalls will help you manage costs, seize opportunities and drive projects forward..
1
Not presenting a credible deal memo to funders
Many SME developers prepare a rough development appraisal spreadsheet and send it to the lender. Within 36 hours they get an indicative term sheet, excitement mounts… and then the questions start. To put together the funding package and provide actual terms, the lender needs more detail, which means there’s endless back and forth as everyone pieces together the required information. Months can go by with
little tangible progress. And after all that, the deal can fall apart if the numbers don’t add up.
If you prepare a credible deal memo upfront, the whole process is more efficient. This means presenting the full economics for the various pieces of financing, underwriting the market, providing comparables, outlining your exit strategy and including third-party back-up information. Not all SME developers have the time or toolkit to do this themselves, so it’s worth looking for funders who will partner with you to prepare the memo. The right partner will do the underwriting and put the analysis together before you go to the investment committee. This maximises your chances of getting a firm offer within weeks – and gives all parties confidence the project can be delivered successfully.
2
Not underwriting the professional team
With the collapse of Carillion, contractor due diligence has been in the spotlight – and the risks apply to the SME end of the market, too.
