Large Construction Project Financing -Construction Financing Part 3
How To Secure financing And Prepare Documentation For Your Lenders
Preferred equity isn’t technically a loan; it’s actually when a financial firm provides part of the down payment on a project. It’s used if a lender is unwilling to loan you the money to close the gap between your down payment and your project cost. When your project achieves a return on investment, ROI, the preferred equity investor receives reimbursement of their principal first, but you’ll be paid on your principal before they take their interest. Usually, preferred equity investors charge a high interest rate, which could be about 15 percent, but sometimes they’re the only option available. A lender like CambridgeHomeLoan.com can help you put together the complete capital stack.
Revenue-based financing is not a loan, but an agreement to sell a portion of your future revenue. It can provide an average funding of $5,000 to $250,000 – usually about a third of your annual revenue. Repayment time ranges from one to three years, taken as a percentage of your revenue each month. Rather than interest, you repay the amount plus a percentage of the borrowed amount. That extra runs from 7 percent to 40 percent.
To secure this kind of financing, you not only need to show future income but also specify how you’ll use the funds. Revenue-based financers are looking to lend their money for growth-oriented activities. Also, you want to be sure that you are not hindering your future growth with this kind of financing strategy.
It’s always easier to get a loan for an owner-occupied, single-tenant or multi tenanted building than for a non-owner occupied facility. Why? Because there’s a clear plan for how your property will be used and who will pay the bills.
For multi-tenant facilities, having tenants lined up makes it easier to procure financing. Lenders on multi-tenant retail projects may require pre-leasing to one or more anchor tenants before providing financing. Banks may not make this type of loan at all until a specific percentage (50 percent, for example) of the property is leased to reputable, good-credit tenants. In other cases it is about having good tenants, healthy reserves and a good net operating income. Retailers and potential tenants are everywhere.
Put a package together early and as soon as your project is under way start contacting realtors, brokers and potential lessors with your leasing package. I used this strategy when i purchased or arbitraged commercial properties and it worked amazingly well. We would tie up a property, retail, office, miixed use, etc. go for financing and at the same time be contacting tenants.
In almost every case we were able to procure a tenant or two prior to closing on the financing. This made the lenders job much easier and increased the value of our property even before closing on it.
Have a construction loan expert contact me.
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TYPES OF FINANCING AVAILABLE
Different Types of Construction Financing Sources
For businesses taking on large contract jobs or construction projects, keeping finances on track is of the utmost importance. Instead of holding up projects trying to navigate a sea of red tape with traditional lenders, or placing a strain on your cash flow, let us help.
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