Just how much can you blag?

SeanPuddin

Looking to start a business but need at least 1million+ to develop some land. How exactly do you go about getting that amount of money, and where? Any advice would be appreciated!

Rabies

Not looking for much are you

The banks prob will look for something to take if you can't pay back you small loan, house(s), land, vehicles etc.

uberwolf

you need to write a business plan explaining/justifying the investment and how you can make money on it. And more importantly as far as they're concerned how you're going to afford to pay them back.

There is plenty of info online re: business plans. You may find when you run the figures that you're great idea isn't so great after all.

Pataman

Recently I had to do this and apart from the obvious profit element and therefore my ability to pay it back, the bank were mainly interested in the security i could offer. at the end of the day if you dont make a profit it doesnt concern the bank once they have the necessary security to cover themselves. When you make your presentation ooze confidence. If its to do with developing land and selling houses it can be a rough road for the newbie but extremely rewarding, not just financially. Ideally have some sort of brochures from houses in the area to back up the selling price.

SeanPuddin

Thanks a million, very good advice. The sample business plans I found are a bit detailed, but I should be able to draft something up. Thanks again everyone.

antoinolachtnai

As a broad generality, the bank would expect you and your equity investors to put up at least one-quarter of the money in order to give you a loan on it. They will also want to know how you are going to get the money back to them (i.e., who you are going to sell it to at the end). Unless you have other sources of cashflow, they would probably like to see purchasers in place before they give you the money.

Why don't you just sell the land to a developer, or make some sort of profit-sharing arrangement with the developer? If you haven't done this sort of thing before, it's worth thinking about.

Victor

Pataman wrote:

at the end of the day if you dont make a profit it doesnt concern the bank once they have the necessary security to cover themselves.

Banks do want you to make money.

(a) it mean you pay them back quicker and they don't need to chase you
(b) it makes them money

They are also like to charge a higher interest rate on a riskier deal.

antoinolachtnai

It's hard to believe, but bankers don't actually enjoy appointing receivers and paying them fat fees.

Victor

"If you owe the bank a thousand its your problem, if you owe the bank a million its their problem."

Pataman

Victor wrote:

"If you owe the bank a thousand its your problem, if you owe the bank a million its their problem."

true, but generally they wont give you the million in the first place unless you have enough collateral

nlgbbbblth

this will depend on

a) is it a speculative purchase? i.e. has land been zoned residential yet?
if zoned, then you should have no problem getting planning for a reasonable development. that's presuming you just want a site loan. A development loan will only allow you to build a certain no of houses before you can show the Bank that there is demand i.e. presales.

b) own contribution. ideally you should not borrow more than 70% of the purchase price.

c) repayment capacity. can you cover interest?

Pataman

nlgbbbblth wrote:

this will depend on

a) is it a speculative purchase? i.e. has land been zoned residential yet?
if zoned, then you should have no problem getting planning for a reasonable development. that's presuming you just want a site loan. A development loan will only allow you to build a certain no of houses before you can show the Bank that there is demand i.e. presales.

quite true about the presales, but you can often buy the land subject to planning with a refundable deposit.

b) own contribution. ideally you should not borrow more than 70% of the purchase price.
This can be quite difficult especially if its your first foray into the development/building game.

c) repayment capacity. can you cover interest?
A lot of banks will allow you to "capitalise" on the deal, ie the interest just accrues without you having to pay any back. I know the result is you take a hit at the end also you are paying interest on capital plus interest but if you can manage to get the project finished early it is to your advantage, also keeps the cashflow down.