Guido1980
2020-01-19 10:08:53
- #1
In construction financing, the question currently arises as to at what point the existing equity can/must be used.
Example:
-existing land paid for entirely with equity
-construction costs excluding land including outdoor facilities and fittings €1,000,000
-equity €800,000
-financing requirement €200,000
-100% repayment over 10 years
-interest fixation 10 years
-start of construction April 2020
-planned construction time 1 year
-interest-free provision depending on the bank between 2 and 6 months, thereafter between 1.5 and 3% per year
-special repayment 5% of the loan amount (€200,000) per year
Do the banks insist that one first uses up the equity and then draws down the loan ? Then the interest-free duration of the provision would of course be very important, since in the example given it is assumed that the loan will only be needed in about 10-12 months. This in turn raises the question of whether it even makes sense to conclude a loan agreement now, or whether one should first use up the equity and then see what financing requirements remain, since the construction costs are already calculated with a high degree of certainty and it could theoretically even be the case that no loan will be needed at the end if everything goes optimally.
If this is the case, do the banks then require proof of the total equity used before the loan is disbursed, or can I draw down the loan at any given time and only prove the loan amount by invoices? Logically, it would actually make sense if I could draw down the loan when I can demonstrably show that the amount corresponds to equity (including land) already used, because then there is a corresponding countervalue. Then the bank could at most complain that a started construction cannot be valued as a one hundred percent countervalue.
Thank you very much for your answers.
Example:
-existing land paid for entirely with equity
-construction costs excluding land including outdoor facilities and fittings €1,000,000
-equity €800,000
-financing requirement €200,000
-100% repayment over 10 years
-interest fixation 10 years
-start of construction April 2020
-planned construction time 1 year
-interest-free provision depending on the bank between 2 and 6 months, thereafter between 1.5 and 3% per year
-special repayment 5% of the loan amount (€200,000) per year
Do the banks insist that one first uses up the equity and then draws down the loan ? Then the interest-free duration of the provision would of course be very important, since in the example given it is assumed that the loan will only be needed in about 10-12 months. This in turn raises the question of whether it even makes sense to conclude a loan agreement now, or whether one should first use up the equity and then see what financing requirements remain, since the construction costs are already calculated with a high degree of certainty and it could theoretically even be the case that no loan will be needed at the end if everything goes optimally.
If this is the case, do the banks then require proof of the total equity used before the loan is disbursed, or can I draw down the loan at any given time and only prove the loan amount by invoices? Logically, it would actually make sense if I could draw down the loan when I can demonstrably show that the amount corresponds to equity (including land) already used, because then there is a corresponding countervalue. Then the bank could at most complain that a started construction cannot be valued as a one hundred percent countervalue.
Thank you very much for your answers.