Construction loan. Problems of housing construction lending
Construction requires a lot of start-up capital, which can be obtained through loans. This article will help you find out which banks provide such programs to borrowers and where you can get funds for such purposes.
Services to commercial organizations are offered by many banks in the country.. Only a few of them provide a special program for the construction. Several of these banks are listed here, they can be quite useful.
Sberbank issues loans that cover more than half of the project budget. You can get ruble, dollar or euro loans. Also, the bank conducts construction expertise of projects and provides other services.
Alfa Bank finances developers and equity holders, while there is a minimum loan amount for a company. Funds are allocated to most categories of commercial buildings, there are strict requirements for clients.
Absolut Bank offers similar services. At the same time, you can get additional services that can be quite useful during construction.
All these banks also provide a wide range of services to their commercial clients. Therefore, if services are already being provided by these banks, then it is quite possible that it will be easier to receive funds.
Since very large sums usually appear, then requirements for borrowing companies corresponding. Most banks are ready to cooperate with those who have been on the market for many years and successfully run their business.
To confirm your status and goals, you will need a lot of documents. Banks should see them in order to check the reliability and expediency of issuing funds for certain projects and only then transfer them to the account.
Each bank has its own requirements. You need to carefully study them even before filing, in order to immediately prepare the necessary package of documents. Sometimes they are published on official websites along with the requirements.
Bank representatives will see how long the business has been running and what long-term results it brings. They will also correctly assess the scale of future construction and its possible prospects.
Also, the more successful the business, the more favorable interest and a long payment period the bank can offer.. It is desirable to have other projects that already bring dividends.
If there is little time to communicate with bank representatives, you can use the help of loan brokers. They charge a certain percentage for looking for the most suitable loans and applying for them.
When signing such large transactions, legally correct execution of contracts is important. Use the help of competent lawyers so that the contracts are beneficial for all parties.
Our website has a lot of information for entrepreneurs. Read the pages about where it is better to open an account, how to get a cash loan, how to get loans for tenders.
Leave your opinions and suggestions in the comments. To decide which banks are suitable and the most profitable way to get loans for commercial construction, read the reviews.
In construction, it is customary to consider separately long-term and short-term lending, which differ in goals and methods. Long-term lending refers to the provision of loans to investors as financial resources for investment, i.e. to pay for the work and goods necessary for construction. These processes are described in paragraph 25.7.
Short-term lending is intended primarily for contractors, sometimes - for customers, in order to supplement temporarily lacking working capital and maintain the normal progress of construction. As shown in ch. 33 textbooks, the working capital of contractors is necessary for their normal functioning. This is due to the pronounced monthly and sometimes seasonal cyclicality of economic and production work.
Thus, the concept of long-term lending in construction is associated primarily with the development of the investor's fixed assets, short-term - with the replenishment of the contractor's working capital. At the same time, contractors, if they are confident in the stable development of their business, can take long-term loans to purchase new construction equipment and develop their own construction base - then they themselves become investors. However, investments in domestic construction are not too large and are not growing, despite the need to replace and purchase new equipment (Fig. 38.1 and 38.2), therefore, contractors do not often take long-term loans. The reasons lie in the lack of a sufficient portfolio of orders, insufficient profits on new or ongoing construction projects, unclear prospects for the use of new expensive equipment, and the need for large collateral for loans.
With long-term lending, a business plan is drawn up, which is submitted to the bank. With significant amounts and terms, the loan is distributed into tranches, each of which can have a different size and repayment period. The loan agreement may include a clause on the mandatory involvement of certain technical agents, subcontractors or suppliers (so-called tied loans).
To conclude a loan agreement, a construction organization submits to the bank an application with the requested amount and terms of lending, documents confirming the alleged source of loan repayment, documents on loan security, the latest financial statements, etc.
Short-term loans are received for a period of up to one year, more often for several weeks or months. Loans can be issued secured (collateral) or unsecured. An unsecured loan is issued only to a person with an impeccable credit history and for small amounts.
Rice. 38.1.
Rice. 38.2.
Obligations to secure the loan must be specified in the loan agreement. To secure a loan, the bank may require a pledge of movable or immovable property, third-party guarantees, assignment of receivables, etc. As movable property, an enterprise can pledge its own vehicles, construction vehicles, machine tools and other
liquid property. Stocks of materials and work in progress are not pawnable, as this will interfere with the normal production process. Leased fixed assets are not accepted as collateral.
A commission may be appointed to assess the actual value of the pledged property. Before foreclosure (i.e., until the demand for collateral) in accordance with the contract, the pledged equipment can be used in construction.
Real estate pledge (mortgage) is issued somewhat more complicated, therefore it is used, as a rule, for long-term lending. Mortgage agreements are registered with Rosreestr. Mortgaged real estate requires verification of "purity of ownership", while using state registration data.
In the absence of the necessary collateral, the borrower may submit a guarantee from third parties who undertake to be liable to the creditor jointly with the borrower. The guarantor should responsibly approach the issuance of such an obligation, since, for example, in the event of bankruptcy of the borrower, the guarantor will have to fully pay other people's debts.
Boles safe is the borrower's insurance with an insurance company. At the same time, the insurer receives from the insured an insurance premium (ie, payment for its services and risk), the rate of which is determined taking into account the probability of the borrower's insolvency.
The size of a short-term loan depends on the availability of own working capital, the need for funds and the amount of the advance payment received. With a normal amount of working capital and timely payment for work, a short-term loan is usually not needed. To calculate the required loan amount, a plan of income and expenses is drawn up.
For example, the balance of funds in a bank account on the 1st of the month is 300 thousand rubles. In accordance with the rental agreement for equipment, it is necessary to pay 141,600 rubles for rent by the 5th day. with VAT (when planning a loan, payments must be taken into account with VAT, since this is required by the rules for settlements through a bank). About 660 thousand rubles will be required for staff salaries with accruals; wages must be paid before the 10th, and late wages are fraught with penalties. Around the same time, the payment deadline for incoming materials will come - 413 thousand rubles. VAT included. Depreciation and internal write-off of materials into production are internal operations and do not affect the amount of necessary working capital.
Payment from the customer is expected by the end of the month in the amount of 1,770 thousand rubles. with VAT, which will more than cover the expected costs. In this case, the need for a short-term (up to one month) loan will be 141,600 + + 660,000 + 413,000 - 300,000 = 914,600 rubles. With some margin
for unforeseen expenses, the amount of the need for a loan will be approximately 950 thousand rubles. (NDS is not appearing). Monthly debt service costs at an annual rate of 9% will be
950,000 0.09 / 12 \u003d 7125 rubles.
The rate of a short-term loan is usually higher than a long-term one, and averages 9% per annum. There is usually no talk of an economic effect in short-term lending - this is a forced measure that ensures the continuity of construction production in the face of a shortage of own working capital. We can only talk about the relative benefits of credit compared with penalties for non-payment of debts and losses from stopping production. In any case, it should be understood that a loan is a gain in time and a loss of money.
- The Bank of Russia maintains the Central Catalog of Credit Histories, data to which is transferred only with the official consent of the borrower.
- Data of the Central Bank of the Russian Federation for 2012
The main type of residential buildings under construction in our country is multi-apartment residential buildings. Lending for their construction is very specific. The fact is that the income from the project for the construction of such a house cannot be clearly determined in advance. Income arises from the sale of apartments, and at the moment when construction begins, it is impossible to say with certainty at what prices the apartments will be sold by the time it is completed. In addition to general price fluctuations in the market, unpredictable changes in the terrain also affect the cost of apartments. For example, the appearance of plans to build a metro station or a multi-storey garage next to the house usually increases the cost of apartments, while plans to build a cement plant reduce it.
In addition, the cost of building a residential building is also impossible to determine in advance. During construction, there are always so-called unforeseen works and costs that are really impossible to foresee. For example, in one of the residential buildings under construction, a water pipe burst into the cement stored in the apartment. Over the weekend, the apartment turned into a very strong concrete cube. You can imagine how much unforeseen work and costs this event caused.
Due to these features, lending organizations can never be sure that the building will be completed on time and within the budget, and housing will be successfully sold. Accordingly, banks can never be sure that the developer will be able to repay the loan issued for the construction. In this regard, foreign banks, when providing loans for the construction of multi-apartment residential buildings, traditionally use a special scheme in which most of the risks are transferred to other organizations. This scheme looks approximately as follows.
The developer at his own expense acquires a land plot (or the right to lease a land plot). He then hires a design organization and orders the project from them. The design organization executes the project and insures it. At the same time, the presence in the project of such errors and omissions that can lead to an increase in the cost of construction is insured. Naturally, insurers do not work with design organizations that often make mistakes, so such organizations are forced to leave the market. It should be noted that this method of rejecting incompetent organizations is very effective.
Having a project, the developer announces a tender for the selection of a construction contractor, which must provide a performance bond. It is guaranteed that the construction company will be able to fulfill the contract within the agreed timeframe and for the price specified in the bid. The guarantee is usually given in the amount of about 10% of the value of the contract with the contractor. It can be either in the form of a bank guarantee (naturally, not from the bank that lends to the construction), or in the form of insurance or surety. In Holland, for example, there is a special guarantee fund, dealing exclusively with the provision of such guarantees to construction companies.
Knowing what construction should cost him, the developer analyzes the situation and trends in the housing market and prepares a business plan, that is, a document that should convince the bank of the profitability of the project. All these activities, from the purchase of land to the preparation of a business plan, take up to 30% of the project cost.
With a business plan, the developer goes to the bank. At the bank, either banking specialists or experts from a specially hired independent firm study the business plan, the results of a housing market study and compare the offer of the contractor with the average construction cost of similar facilities. In case of a positive opinion of the experts, it is recommended to issue a loan for approximately 70% of the project cost. After all, the developer has already incurred 30% of the costs. However, no credit is given. A loan agreement is signed with the developer, which comes into force after some time (usually after about 2 months), subject to the developer fulfilling a number of obligations.
These obligations can be quite a lot. Basically, they boil down to the fact that the developer must provide the conclusions of independent organizations confirming the legal purity of the transaction for the purchase of land, the environmental cleanliness of the site, etc. In addition, there may be additional obligations.
In the US, for example, where banks in the 1980s. have been hit hard by the massive bankruptcies of developers, they usually require that the developer, before obtaining a loan, find buyers for at least 70% of the apartments under construction, that is, for the part of the building financed by the bank. Potential buyers must sign an agreement, according to which they undertake, in case of timely delivery of a residential building, to buy an apartment for the agreed price.
At the same time, their obligation must be confirmed by an advance payment, usually in the amount of 5% of the cost of the apartment. The developer does not have the right to use this "prepaid" money for the construction of the facility. During the entire duration of the project, they lie in escrow accounts with the creditor bank. If the developer does not fulfill its obligations, this money is returned to the buyers. It is important to note that the bank recognizes the pre-sale agreement as valid only when the buyer can confirm that he has the means to buy the apartment after the construction is completed.
Since the bulk of home buyers all over the world, except for our country, are people who are not able to immediately pay the cost of an apartment, each buyer must confirm the possibility of obtaining a mortgage loan. In principle, he can get a mortgage loan from any bank, but usually buyers go through the underwriting procedure (credit check) in the same bank that finances the construction of the house and conclude a preliminary mortgage loan agreement with him.
When all obligations of the borrower to conduct legal, environmental and other surveys have been fulfilled, 70% of the apartments have been pre-sold, 5% of the price of each apartment has been credited to escrow accounts, and preliminary agreements have been concluded with all buyers to provide them with mortgage loans, the bank ... no , does not start financing, but concludes a pledge agreement with the borrower. Despite all the precautions taken, financing is not carried out without collateral.
Developer organizations are usually small organizations. They often do not have assets commensurate with the cost of the loan, so the developer pledges the building under construction itself as collateral. At the same time, both the building itself and materials in the on-site warehouse and on the way, construction machines and mechanisms, life and health of personnel and damage to third parties must be insured.
As financing and construction progress, the cost of the mortgaged building increases and at the same time remains the same amount (30% of the total project cost) more than the amount of funds allocated by the bank.
In order to ensure that the increase in the value of the collateral and the amount of the actually issued loan correspond, the bank allocates credit funds only to pay for completed works, that is, works that increase the value of the mortgaged building. Brick brought to the construction site is not paid, because the fact of its import does not increase the value of the deposit. Payment is made only after the wall is laid out of this brick.
Thus, a multi-level bank protection system is formed, which should protect it from losses both in case of successful completion of the project, and in case of its failure - exceeding the planned deadlines and cost. Construction risks are shifted to insurance and guarantee organizations, and the risk of lower prices on the market - to future home buyers.
If the project is successfully completed, the borrower must return the loan from the proceeds from the sale of apartments. When selling apartments, buyers pay to the developer's account in the bank - creditor of the construction. From there, the funds automatically go to repay the loan. Thus, with the purchase of each apartment, the amount of collateral decreases - the share of the building owned by the developer, and at the same time the amount of the developer's debt to the bank decreases by the same amount.
If the building is being erected late, or in excess of cost, the bank receives satisfaction at the expense of the pledge, and the developer's losses are in most cases covered by insurers or guarantors.
This system is well developed and, with some variations, is used in lending for the construction of almost all multi-storey residential buildings (condominiums) abroad.
In our country, the situation is completely different. Construction in our country is almost never financed from credit funds, and the housing construction financing system is usually based on the investments of apartment buyers. In most cases, contracts of equity participation in construction are concluded with buyers. On the basis of these contracts, buyers-shareholders invest during construction an amount equivalent to the cost of the apartment, and upon completion of construction they receive the apartment as their property.
This system is extremely risky for buyers. In fact, at the same time, they turn from buyers into entrepreneurs and, accordingly, bear entrepreneurial risks. The main risk is the risk that the funds collected from equity holders (buyers) will not be enough to complete the construction of the house. In this case, the equity holder will be the share owner of the construction in progress and he most likely will not be able to get his invested funds back.
It would be more natural to build residential buildings not at the expense of equity holders, but at borrowed funds. Buyers in this case would buy apartments in already built houses and would not risk anything. The risk for banks, subject to the application of the scheme described above, would also be minimal. However, loans for the construction of residential buildings are almost never issued. This is not at all connected with the insidiousness of banks, but with the fact that it is practically impossible to apply the traditional, risk-reducing, Western scheme in our country.
There are several reasons for this. First, there is a very narrow circle of those developers who could receive loans under the classic foreign scheme. After all, they need to have enough of their own funds to finance the initial stage, that is, to arrange a site, pay for design and survey work, analyze demand in the housing market and choose a construction company.
In addition, it should be noted that it is almost impossible to find a contractor willing to provide a contract performance guarantee, or a design organization that is able to insure the risk of errors in the design documentation.
However, it must be recognized that even for those who have sufficient funds to carry out the preparatory work, banks often refuse to provide loans due to problems with collateral. The fact is that in our country it is almost impossible to take a building under construction as collateral, and most borrowers do not have other property commensurate with it in value.
Until recently, the use of a building object as collateral was impossible in principle, since unfinished buildings, with the exception of those whose construction was stopped due to lack of funding, could not be recognized as real estate objects at all. Now the situation has changed somewhat. The Supreme Arbitration Court ruled in 1998 that any “uncompleted construction objects that are not the subject of a valid construction contract” can be classified as real estate. Thus, the developers got the right to register the objects under construction as real estate and, consequently, to use them as collateral.
The problem, however, is that it is necessary to register before the conclusion of a work contract, when nothing has been built yet and the unfinished object simply does not exist as real estate. Therefore, there is nothing to register and pledge.
Of course, there is a way out. The contract can be terminated after the construction of a part of the foundation, the building can be registered, a pledge agreement can be concluded, and then the contract can be re-concluded. This operation can be carried out only because contract agreements are not subject to any registration. After all, it is impossible to conclude a contract for the completion of the construction of a mortgaged building. The fact is that when concluding a contract, the general contractor also receives the building under construction as a pledge. If he is not paid for the work performed, he has the right (Article 712 of the Civil Code of the Russian Federation) to retain the constructed building.
It turns out that, according to our legislation, only developers conducting construction on their own can register a building under construction and use it as collateral. They do not need to sign construction contracts.
As a result, if banks agree to take a building under construction as collateral, then usually when its estimated value at the time of pledging is higher than the amount of the required loan, and the developer is also the general contractor.
In the few cases where this happens, serious difficulties often arise at the stage of selling the built housing and repaying the loan. As already mentioned, within the framework of the scheme adopted abroad, as housing is sold, the loan is repaid, and the apartments sold are taken out of collateral. Unfortunately, this does not happen with us. Sales of apartments are almost always carried out according to the scheme of equity participation agreements. Since equity participation agreements are not registered, the bank does not have the opportunity to control how many and for what amount they have been concluded. Accordingly, if sales occur earlier than planned, the borrower gets the opportunity not to inform the bank about this and not to repay the loan ahead of schedule.
In the author’s practice, a situation arose several times in which, by the time the loan was due, it turned out that all the apartments had long been sold to individuals (under equity participation agreements), and the funds received were invested by the borrower in the next object. The bank in this case is faced with a dilemma: either
try to get satisfaction at the expense of collateral by starting a lawsuit with individuals - buyers of apartments, or arrange a fictitious repayment of a loan and issuing it to the same borrower for the construction of a new facility. Banks usually choose the latter and submit to the dictates of the borrower, while losing forever interest in lending to housing construction secured by a building under construction.
Thus, in modern conditions, it is almost impossible to use a building under construction as collateral, on the one hand, and extremely risky, on the other. In the overwhelming majority of cases, banks try to provide loans for housing construction under other collateral. Most often, loans are granted on the security of other buildings and under the guarantees of local administrations. The author is aware of the case of granting a loan for the construction of a residential building secured by a fleet of construction machines.
It is obvious that only very large or very "close" developers to the administrations can provide such security, and even those developers are rarely able to find security for more than one object. Thus, developers are forced to work according to the equity participation scheme, constantly at the risk of not raising the required amount of funds and not completing the construction.
The problem can only be solved at the legislative level. Housing construction lending will not develop until developers are able to pledge the building itself as collateral and lose the ability to sell apartments from the mortgaged building without paying off the loan.
Unfortunately, no one is working on a solution to this problem. Judging by the “Concept for the Development of Mortgage Lending in the Russian Federation” (section “Housing Construction Lending”) adopted by the Government of the Russian Federation in January 2000, such a problem simply does not exist.
V.M. Mints, Candidate of Economic Sciences
This is the amount of money issued by the creditor bank for the construction of objects of various types. Banks issue such loans under the building itself or the rights of full or partial ownership of this object. At the expense of credit funds, developers purchase materials and pay for all the necessary work carried out during the construction process.
The urgency of issues on expanding the scope of construction lending is due to the lack of high-quality and reliable buildings. This applies to both residential premises and administrative, commercial and other buildings. This provoked a need for narrow specialists. The fact is that a characteristic feature of construction loans are large amounts of money transferred to consumer accounts. The turnover of such volumes of money is difficult to control, therefore, to maintain accurate records, banks hire specialists in loans in the construction segment.
Even the most developed construction companies often do not have enough free funds to start the construction of an object. Banking organizations are mainly interested in issuing such loans. Firstly, well-known reputable companies are unlikely to want to spoil their reputation with a bad credit history. Secondly, bank funds for them are an almost inexhaustible source of finance, therefore they will not spoil relations with banks. But it should be noted that the mechanism of credit relations in this industry does not have proper development in our country.
Factors hindering the development of relations in the field of construction lending
Not all banking institutions are ready to issue a loan to a construction organization, due to a number of factors. There are many such factors. And among them, first of all, it is necessary to note the following:
1) It often happens that the developer plans to build a new facility on unlegalized land. Cooperation of banks with such developers is not desirable, as there is a risk of losing a huge amount of money. An illegally constructed residential building, shopping or entertainment center, clinic or law office will not generate financial income to repay the loan funds until the rights are legalized in accordance with the law.
2) In our country, the system of registration of land rights is also not properly developed, which almost always leads to problems of various sizes, from minor conflicts to litigation.
3) The lender issuing a construction loan will be obliged to sell the unfinished building if the developer fails to do so.
4) Due to the above reasons, the creditor bank cannot have a 100% guarantee of the fulfillment of credit obligations by customers. In addition, there is always a risk of reducing the liquidity of creditor banks.
What legislative steps should be taken to develop construction lending?
- Liberalization of state policy in the field of land transfer to private ownership.
- Development of new draft laws regulating the system of relations in the field of construction lending.
- Development of normative acts that ensure the accounting of rights to construction in progress.
- Cancellation of legal restrictions complicating credit relations against the backdrop of a possible default.
For the development and improvement of the credit system in the construction sector, it is advisable to introduce the following provisions:
1) Interest on loan funds must be repaid by the developer during the construction process, while the loan amount itself - after the building begins to bring.
2) Before starting construction, look for potential customers for the implementation of the constructed facility.
3) Banks, before issuing loans to construction companies, should carefully study the potential risk of construction.
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ARS-PROM acts as a consulting agent, which helps to obtain a loan with the most favorable conditions. We will help you complete your loan application and submit it to the bank. PJSC "Sberbank" offers 2 options for lending: secured and without collateral.
Application
Submit an applicationthrough the site. The ARS-PROM manager will contact you to clarify the details and proceed to the calculation of the cost of the building.
Getting a loan
We will help you draw up documents and get loans for construction on favorable terms.
Construction of a building from LSTK in Moscow
Immediately after the bank approves the application, we will proceed to the construction of the building. A few months - and you pay off the loan with funds received from the completed building.
from 14,5
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2
of the year
duration of IP
from 14,5
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before 10
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loan terms
8-11
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term for consideration of the application
3
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What objects can
build on credit?
Our mission is to help you build an efficient business building. And if lending is convenient for you, we will be happy to assist a legal entity in obtaining it for the construction of residential or commercial prefabricated real estate. What building do you need? Multi-storey building, factory, car wash or shop? Any commercial real estate can be built on a turnkey basis using a loan issued to a legal entity.
If you already have land for multi-apartment housing development, the fastest way to implement the project is to build turnkey multi-storey buildings on credit. Real estate is always in price, which means that if you choose the right place for building houses, it will not be difficult to pay off a loan for construction.
The construction of industrial buildings can also be carried out with a loan. Structures from the ARS-PROM factory are designed for quick and easy turnkey assembly of a building. If you have land for the construction of an industrial building or plant, contact ARS-PROM to clarify the conditions for obtaining a loan.
A car wash is a business that, with the right choice of location, can pay off in less than a year. With structures from ARS-PROM, this is more than realistic, because the cost of structures for a prefabricated car wash will be minimal. Build a turnkey car wash on credit and pay it off as quickly as possible with the income generated by your new business.
Prefabricated store
on a turnkey loan
A store or a pavilion on credit is a business that will pay off in the shortest possible time. ARS-PROM designs come straight from the factory with no dealer markups. Therefore, the cost of the store is minimal, and the return on investment is high. A store built on credit is a business that will very quickly allow you to pay off your debt to the bank.