The right finance package can help you deal with delays

The economic impact of the Greater Sydney COVID construction ban cannot be understated and it provides some powerful lessons in the need to be savvy when negotiating finance for any major project.

The two-week lockdown announced by NSW Premier Gladys Berejiklian on July 17 has been estimated to affect more than 250,000 jobs and cost the industry at least $1.4 billion.

A prolonged lockdown for the construction sector will see that $1.4 billion balloon.

Project delays will be the most obvious impact of the current COVID construction lockdown. It will take some clever rescheduling the make up for lost ground but there will be many other hidden consequences that will take months, if not years, to play out.

Re-booking sub-contractors, dealing with anxious employees, suppliers, investors and purchasers and restarting all aspects of a development will take time and management skill.

Small to medium construction industry businesses may be entitled to some NSW Government support. JobSaver provides tax-free fortnightly payments of 40 per cent of your pre-COVID weekly payroll, for instance.

Other available relief includes temporary flexibility for negotiating with employees to use their long service leave, and payroll tax deferrals and concessions.

Meanwhile, each week that a construction site (or any project for that matter) sits in cotton wool, interest on any finance will still need to be paid.

Even if you can negotiate a repayment ‘holiday’ with your lender, the interest will still be accumulating and capitalising. If you have the wrong loan in the first place the cost of any project delay can have a catastrophic impact on your bottom line.

Hindsight is a great thing and, unfortunately, there was no way you could have foreseen the whole construction industry in Greater Sydney ever going into compulsory lockdown when you negotiated what looked like a cheap, low-fee 70 per cent loan to secure your site and kickstart works.

You needed to secure the loan quickly so you went to the broker you’d successfully used before and the whole deal was negotiated within days.

Well, as lockdowns are teaching us in no uncertain terms, sometimes the best thing you can do is slow down and do some proper prior planning. That’s easier said than done when you are managing every aspect of a multi-million (or billion) dollar build. “I don’t have the time to research the whole finance market,” I hear you say. I hear you.

I have been structuring finance for developers for the past 35 years so there are very few market conditions that I have not experienced. Market volatility is one of the reasons why I developed the 100 per cent Funding Facility for developers.

Speed is the main advantage of the 100 per cent Funding Facility.

Developers who will have to recover from this enforced COVID delay would, under the facility, be able to speed up the purchasing process, thereby attracting both investors and purchasers – both of whom you will need to shore up your cashflow and save a project’s profitability.

We will still negotiate the best possible deal with a conventional lender for 80 per cent of the purchase price. The other 20 per cent is provided by a unique lending trust, underwritten by the developer who, in turn, receives a return on their investment in the trust, further improving their cashflow.

For more information about the 100 per cent funding facility, give me a call on 02 9484 0609 or email me at [email protected]