Real estate development finance involves securing all the necessary funding to produce a real estate development project. One must know when to use these types of loans and who can be secured for them, as well as what potential lenders are looking for. The following is a list of essential principles for securing real estate developments loan:
– Avoid financing debt with equity – Accessible liquidity is essential, so avoid borrowing funds that will place you under pressure in the future when they may need to be paid back immediately.
– Invest extra cash into your business – Ensure that any profits generated by your investment are enough to repay borrowings and meet any other financial obligations arising from the deal (like legal fees).
– Have a good business plan and keep the cash-flow statement updated – Ensure you can generate enough profit to cover the demand of all loans, but also ensure that expenses are encompassed, as these may vary.
– Know that commercial banks and lenders are in business to lend money, so if you can’t pay your loan back – they will have to produce a win for their shareholders.
– Keep your Property Register up to date – One of the major factors banks will be looking at is how much equity has already been provided. Therefore your Property Register must show how much cash has previously been invested, who it has been invested by, and what you have received in return.
– The longer the loan, the higher the interest rate will be – The length of time a loan lasts is important to banks because they have to plan their cash flow and know what they can charge you for.
– Paying interest is not a bad thing – It is just part of the business costs that one has to pay to get money from lenders. However, if you can show that you are earning a higher profit than the interest you are paying on your loans, this may prove beneficial for you in securing future loans.
– Always have the plan to repay your loans – Banks want to know that you have your finances in order and will be able to repay all debts over time.
– Keep your company’s financial records updated – Banks like to make sure that their loan calculations are accurate and are up-to-date, so you must follow this process and note down any expenditure or income as it occurs.
– Be prepared for the worst-case scenario – This means having a plan for every possible event which could happen, including tax problems or defaults of other lenders.
