Construction finance/Project finance
Builder Finance is essentially the loans provided by banks and Financial Institutions to a Builder or real-estate developer for developing real-estate projects.
Builder Finances come with customizable features based on factors like project land acquisition, estimated project cost and a detailed project assessment and evaluation will be conducted by the financing company. The loan terms may also be customized across the project development cycle to meet specific needs.
Let’s look at the various types of finances that are offered by a Builder Finance Company.
Construction Loan: These are normally non-recourse loans, where the project assets are held as collateral security and debt is serviced through cash flow yielded from the project. Such loans are backed by a detailed project report, company profile, project valuation report, cash flow projection, and credit history of the builder. He should be a seasoned builder with minimum experience in construction or has completed construction of requisite sq. ft. Few advantages of opting for a construction loan are that the processing turnaround is quick, high chances of approval, and one can also enjoy flexible repayment terms. Loan instalments are usually disbursed in phases, based on the progress of the project.
Inventory Financing: Where ever builder completed 90% of construction and not availed any loan for the project he can avail loan against unsold inventory. Normally Inventory funding will be availed by most of the builders in order to complete the balance pending works and sell the inventory at ready to occupy stage to get the better price.
Whenever the units are sold the proceeds of the sold unit will be adjusted proportionately towards loan availed.
Standard Term Loan: A builder can also source funds from a bank or a Financial Institution in the form of a Term Loan to finance his real-estate project. Mortgage of assets of adequate value (not necessarily or restricted to project assets) acknowledged by the lending entity may be required in such loans. Debt in this case too is normally serviced by cash flow generated from the project. Loan disbursement, in this case, may either happen in a single tranche or can be split into instalments, depending on the builder’s requirement.