Real Estate Financing Firm – Overview, Functions, and Services
February 12, 2021
What is a real estate financing firm and what does it do?
A real estate financing firm as the term suggests is an organization offering a plethora of financing solutions to Real Estate companies. Their unique approaches are designed to meet the financial needs across a real-estate project life-cycle, right from the inception till project closure. Such projects are capital intensive and each of the project phases, like deal sourcing, land acquisition, constructing, renovating, managing inventory require, meticulous planning and execution, which is what real estate financing firms excel at. Projects at nascent stages are very slippery and either require substantial collateral for loans or equity for funding. Once the project plan matures, a combination of loan and equity funding might fit right. Just like other Project Finances, loans for real estate projects too are obtained on the basis of future cash-flow and estimated operating expenditure. Whether the project would generate recurring revenue (commercial buildings like a hospital, School, hotel) also helps determine the span and structure of the funding.
What services does a real estate financing firm provide?
Real Estate financing firm often need to wear many different hats to service their clients. Some roles are advisory whereas others are core financial solutions to arrange funds as per the specific requirements of each client. Let’s find out what type of services does a real estate financing firm provide.
- Land Acquisition Finance: For a new real estate project that needs to start from scratch, many issues need to be dealt with, which if left unattended, can disrupt the project, such as solving past legal, social, or political disputes. Before correct funding can be sourced, these issues are often dealt with by a Real estate Financing firm. Land Acquisition finance is fundamental to real estate projects being built ground up. The solitary purpose of this finance is to purchase a building site only and expert foresight of a real-estate financing firm is considered paramount for gauging the true value of the land.
- Pre-construction Finance: Even though construction may not have begun, that does not mean there aren’t any bills to pay. Pre-construction Finance caters to supporting developers before the influx of construction finance. This funding helps clear the preliminary tasks such as obtaining approvals and paperwork before construction can begin on the site. By offering this finance, a real-estate financing firm arranges continual cash flow and helps in the timely completion of the project. Since these loans are interim to the major chunk of the project, they are secured against tangibles, like alternate property as collateral.
- Construction Finance: This category of Real estate finance help builders start constructing commercial or residential premises. The funds can be utilized towards construction costs, paying suppliers, purchase of machinery, or adding to the working capital. These funds come in various forms of secured and unsecured loans against sales receivables. Construction finance comprises a large sum and hence the repayment conditions and tenor are generally kept flexible.
- Refinance: Through this service, a borrower can replace his existing loan with another, where the terms are even friendlier. Refinancing helps negotiate a better rate of interest, loan tenure, modify the terms and number of lenders, switch from floating to a fixed rate or vice versa, avail a top-up loan, etc.
- Inventory Finance: Real-estate projects need to purchase raw materials in bulk. But, the turn-around time for the inventory to convert to revenue is extremely long and until then, the inventory capital stays locked. To facilitate cash flow in the interim, inventory finance based on the stock-in-hand value can be availed through this service of a real estate financing firm.
- Lease Rental Discounting: This is typically a term loan, that’s arranged by a real estate financing firm, on the basis of rental receipts as collateral. Loans in this category are sanctioned after close examination of the cash-flow and are repaid through rents. This is very popular among commercial projects that earn monthly rental.
Benefits of hiring a real estate financing firm:
- Easy access to knowledgebase: Companies and individuals gain access to the diverse expertise of representatives who are updated about the market changes and are always practicing innovative solutions to each unique problem.
- Reduce overhead costs: By not employing a full-time employee for financial needs, a company saves on perpetual payment of salaries and saves considerably on tax also.
- Evade pressure: The process of securing the right funds at the best rates could be stressful and tedious. One can be free of such burdens by hiring a reputed real-estate financing firm.
- Automated reporting: A real-estate financing firm also offers automated integrated tools that present great reports and insights on the basis of which ground-breaking measures could be adopted.
- Quicker Turnaround: Real Estate Financing firms operate on thoroughly researched and streamlined processes and hence they are more efficient and accurate. This helps closing deals at a quicker turnaround.
- Achieve client satisfaction: Amid this neck-to-neck competition, a company has to overly satisfy a client to stay afloat and win the largest morsel. To achieve this and ensure customer retention, most real-estate financing firms offer to process the back-end jobs also. What more can a client ask for? By choosing a good real-estate financing firm he can be relieved from all such worries and shift focus towards his larger personal and professional goals.