By NAN Business Editor
News Americas, NEW YORK, NY, Fri. Jan. 18, 2019: Many often erroneously believe that developers who build projects costing millions of dollars are so wealthy, they use their own money to make their dream possible.
That could not be further from the truth. The fact is that developers or people seeking to become developers raise major money though a number of project finance options. The key, however, is that they have some of their own money to plough into the project and cover the costs involved in raising the millions they need to get from dream to reality.
The bottom line being – it takes money to raise money and any one who says otherwise is not telling the truth. Just like it takes money to buy a house, it takes money to raise funding for projects – whether it’s a commercial real estate project, a resort development, buying a hotel, mining, drilling, getting into the green energy sphere, medical marijuana, starting an airline, et al.
Or as lenders like to call it – skin in the game. So how much “skin in the game” do you need. It all depends on the finance option you choose. At Invest Caribbean, there are at least three options available from the agency’s funding partners.
Loans or debt finance involve developers borrowing the money to build, buy or repair and paying back a “mortgage” monthly with interest. Amounts start at USD 1 million and interest rates depend on the appraised value of the collateral in hand of being bought, such as the land value. Costs vary from banks to private lenders but at the end of the day, there is always going to be commitment fees and closing costs, which depends on the amount being sought. Closing times with private lenders can be as little as six weeks and the advantage there is that tax returns, bank statements etc. are hardly reviewed as the decision is largely based on the collateral and the ability of the borrower to pay the closing and commitment costs.
2: Joint Venture Financing
Joint Venture Financiers are often private lenders who come in as both an equity and debt finance partner. Most JV funders offer 60 percent debt financing and ask for 40 percent equity stakes in the company. The process can take a minimum of three months as JV funders ask for a lot of details from developers, beginning with a business plan, a budget, feasibility and environmental impact studies, experience of the team and of course a ROI Plan showing financial projections and a clear exit strategy if any. Costs include a commitment fee as well as closing costs that can range from 5 percent of the total being raised. With this type of financing, you pay back only 60 percent of the money borrowed monthly with a lowered interested rate than straight debt and you can buy out your equity partner at any time.
3: Non-Recourse Loans Or Leaded Back Guarantee
This is a non-traditional option few developers are aware of that allows them to invest some of their own money – if they are cash heavy – to raise all of the money they wish with what is largely a credit line. The leased back guarantee allows developers to monetize instruments for cash with Private Placement Programs (PPP) and get a 70 percent credit line in 30-days and repeat the process until they reach the amount needed to build.
There are other finance options, depending on the project and the amount of money you are seeking to raise major finance, but at the end of the day, any one looking to raise millions must have some hefty cash in hand to combine – there are no ifs or buts about it.