One of the primary obstacles to obtaining private project financing is understanding the differences between the formal banking experiences that home builders are accustomed to and the new world of private project financing. Here are some of the characteristics and business practices that clearly differentiate banks from the private market:
Private project financing entities...
- Are not subject to extreme FDIC/banking regulations
- Do not borrow money from the government for next to nothing
- Cannot match terms provided by banks
- Have not opened branch locations all over the city
Private project financing does not...
- Show proof of funds
- Deposit all funds in escrow
- Provide guarantees outside the funding contract
- Meet with you, one on one, and negotiate terms, like a bank may have done
- Have a loan officer at a convenient office location, Monday through Friday
- Provide references
Private project financing will often...
- Take longer than banks to fund loans or, in the case of small-managed funds, provide quicker funding
- Fund projects in today’s market that make sense and meet the objectives
- Be more creative with programs and terms, including joint venture agreements
- Syndicate the funds, raising the stability and probability of funding all draws
- Not tell you what you want to hear, but will tell you what you need to know
The project financing process is forever changed. When banks get back into the game, the rules will have changed so significantly that everyone who obtained financing before 2008 will no longer recognize the new process. We are in a “new normal.”
One of the primary obstacles to obtaining private project financing is understanding the differences between the formal banking experiences that builders and developers had become accustom to and the new world of private project financing.