So I get this email from a lady from a local bank asking to collaborate with us on projects. She rightly points out that because most projects are killed by lack of financing, we should work together seeing that I am deeply involved in this sector. She goes on to give me snap shot of their success projects done in town, which are quite impressive and are the talk of town. Wait a minute, are banks now hawking construction financing deals?
Are the days of begging to be funded finally over? Hopeful, huh! This quest almost disturbs me but I quickly realise the blessing that may just have been placed on my lap. I start seeing an opportunity for collaborative project partnerships where we will be able to package deals that are bankable in all fronts. I do a quick search to find out more on what I may just be expecting.
What really are financiers looking for? All said and done, financiers are investors. They are looking for the deals that have the best returns in the shortest time possible. Deals that are almost free of risk and free of controversy. How do they thus ensure that they always get these? First of all, these financiers screen the professionals they are to work with thoroughly.
Authentic and accredited consultants who also have professional indemnity covers are most attractive. They vet these with care in a bid to minimise the associated risks. Secondly, the projects are subjected to security. Besides their feasibility and viability, they are tested for authenticity. From the land ownership to the land use to the required approvals, name it.
A title deed being accepted by a financier will be free of controversy and any change of user approvals will have been verified. The National Environmental Management Agency (Nema), council approvals, land rates, stamp duty, name it, all have to be in good status. Then there is the bulk of commercial feasibility. Here, numbers will be crunched to a point of no lie.
So, the cost of the project versus the revenue realisable; the pay-back period versus the returns on investments; and the relative ratios of investment will form part of the financial analysis. Other areas of importance would be the business plan proposals on how to achieve the revenues and the marketing strategies to be implemented. Everything must make sense.
And of course there is the silent clause ability to meet the cost of finance. Yes, one must service the loan during construction and meet some portion of the cost of finance. I think this is punitive. The funny thing is the liability of this loan somehow jumps to the promoters or owners of a project despite the legal separate entity of the trading companies. I say this is the hardest bit of the requirements.
And I guess that’s why some banks will give propositions on a longer moratorium. They will try to delay the time the principal loan is to be repaid to almost after construction and possible completion of sales. My wish is that the interests too were applied on a similar manner. The above is mostly the propositions you will get from the banks.
However, you can seek non-banking financial support, in which case they will almost ask for equity in the project. Save for the fact this dilutes the relative investments by the land owners as well as the project promoters, this may be a safer route to take. This is not only because the risk is shared among all stakeholders but also because the requirement to service the finances is completely eradicated.