Taking the Road to Successful Building One Step at a Time
Transactions that involve large amount of money, particularly commercial property loan applications, always come with complex terms and conditions. This is because all parties involved are trying to protect their own interest by avoiding or eliminating as much risk as possible. Most property developers understand that.
If you own a construction firm and you are looking to enter the property development arena, you have to familiarise yourself with the basics of property development financing first. You’ll notice several critical differences between that and the usual financing solutions that you use, which may push you to ditch your original fund sourcing strategy and try something more sizeable.
Purpose of the Loan
Property development finance is intended for large projects, such as extensive building renovation, new residential housing projects and office block construction. Because its purpose is quite similar to that of most bridging finance solutions, you might mistake it for the latter. Property development financing is offered to large-scale construction so make sure that the project you need funding for meets the criteria.
Size of the Loan
The loan will not cover the entire project. Most financial institutions will agree to finance only up to 80 percent of it. Although the remainder seems small, it is actually still a significant portion of the expenses. This means that prior to applying for a certain property development financing program, make sure that you have a separate, secure fund source for the remaining 20 to 30 percent of the building cost. This is where bridging finance may come in handy.
Persuading the Lenders
You always have to remember that even if lenders will have their share of profit in the transaction, it is you who need them not the other way around. Therefore, you have to convince them that the project they are being asked to finance is viable for them. Their main concern is your ability to repay the loan under agreed terms and conditions, and so it should be the focus of your funding prospectus.
A funding prospectus is a legal document that provides details of the investment offering for sale to the public. Instead of seeking funding directly from select lenders, the prospectus will drive competition, and eventually expedite fundraising. The prospectus will also address various issues that might be hampering lenders from agreeing to certain terms you’ve set, including risk factors, intent and summary of the project finances, and funding criteria.
Getting Extra Hand
It’s easy to get lost in the sea of jargon leading to successful funding for your property development project. You need an extra hand to ensure that the sources you are considering are not just secure but sufficient as well. It is also likely that your prospects might not drive as much competition as you would hope it to and your knowledge of alternative funding solutions is not as reliable as necessary. In this case, you will need the aid of an alternative funding solution expert like the IBN Direct.