Project Loan for Builders

A builder or developer can use project loan for various purposes, including but not limited to:

• Acquiring land for a new project
• Financing construction on land that has already been purchased
• Settling dues with relevant authorities
• Transfer of an existing loan with additional funds for project completion

Builders and developers can qualify for a real estate project loan based on the following essential requirements:

• Minimum business vintage of 5 years.
• Successful delivery of at least 3 projects or properties.
• Construction experience of minimum of 1 lakh square feet as a builder.
• For a construction loan, either ownership of the land or a joint development agreement with the landowner.
• For a land purchase loan, a down payment of 55 to 60%.

There are no limits on loans for builders and developers. The amount depends entirely on the project cost, marketable value, and the builder's reputation. While Joy Loan now supports outstation loans for builders, there is a minimum loan size for outstation cases because of financial viability, as outlined below:

• Delhi NCR: 2 Crores
• North India: 5 Crores
• Other parts of the country: 15 Crores

Lenders provide financing for up to 45% of the land purchase cost.

You can access financing for up to 70% of the construction cost for commercial buildings and residential projects.

Builders can refinance the funds already invested in a real estate project, with the lender's exposure limited to 70% of the total project cost.

Many banks, NBFCs, and other lenders can provide you with increased financing against your ready residential or commercial space inventory. The loan amount can be as high as 70% of the property's retail market price.

For projects intended for sale, the loan tenure can be 6 months to 5 years, depending on the project stage.

If a builder is developing commercial spaces for leasing, the loan can refinance for up to 20 years under lease rental discounting after construction completion.

To facilitate the project loan application, lender / investor requires the following documents:

Property Documents:

• Property ownership / development rights
• Copy of all required approvals for the project
• Project Report detailing financial viability and booking details

Financial Documents:

• Complete set of 3 years financials for the firm (including audit reports)
• 3 years individual financials for promoters
• GST registration and the last 1 year’s return
• One year bank statement of the firm and promoters
• Loan account statements and sanction letters of running loans and limits

KYC Documents:

• KYC of the promoters
• KYC of the firm with the registration certificate
• Share holding pattern and list of directors
• Company profile with details of running and past projects

Approval for commercial construction loans typically takes 45 days once all necessary documents are provided.

To apply for a project loan for builders, follow these steps:

1. Research Lenders: Identify potential lenders who specialize in project loans for builders. Look for financial institutions with a track record of supporting similar projects.
2. Prepare Documentation: Gather all necessary documents, including project details, builder's experience, financial statements, project cost estimates, and any other relevant information.
3. Contact Lenders: Reach out to the identified lenders to express your interest in obtaining a project loan. Schedule meetings or consultations to discuss your project in detail.
4. Customize Your Proposal: Tailor your project proposal to showcase the unique aspects and strengths of your project. Highlight the potential for returns and the positive impact on the community.
5. Demonstrate Experience: Emphasize the builder's experience and success in previous projects. Showcase completed projects, financial stability, and a solid track record.
6. Financial Viability: Clearly present the financial viability of the project. Provide a realistic assessment of costs, timelines, and potential returns on investment.
7. Highlight Unique Selling Points: Clearly articulate what sets your project apart from others. Whether it's innovative design, sustainable features, or strategic location.
8. Negotiate Loan Terms: Engage in discussions with lenders about the terms of the loan, interest rates, repayment schedules, and any other relevant conditions.

For a streamlined and personalized solution tailored to your specific requirements, consider contacting Joy Loan. Our team specializes in providing customized financial solutions to meet the unique needs of builders. We understand the challenges of the industry and can work with you to create a financing package that aligns with your goals. Contact us today to explore how we can support your project's success.

Construction loan disbursement for builders occurs in trenches, matching the construction progress. Lenders closely monitor disbursement to ensure funds stay focused on the project. The goal is to prevent funding shortages from slowing down the construction.

Builders repay loans based on project sales and receivables. Lenders ensure comfortable repayment without diverting funds. To monitor sales receivables, an escrow account may be required per the lender's agreement.

If the payment plan allows end buyers to pay more in the final stages, a moratorium option is available. If there's good cash flow during construction, builders can choose to repay the lender.

Banks play a pivotal role in financing real estate projects for builders. Prominent banks extend project loans to builders with flexible and favorable terms. However, to manage risk effectively, they rigorously adhere to debt-to-equity (LTV) norms and may form consortiums for loan sizes of 100 crores or more.

Yet, banks readily offer loans of up to 200 crores or more against completed inventories of builders.

Similar to banks, NBFCs also provide construction loans for builders in real estate projects. Generally, NBFCs offer loan amounts up to 100 crores. However, they can finance much higher amounts, especially when dealing with more secure transactions, such as lower debt-to-equity participation and the receipt of sales proceeds through escrow accounts.

NBFCs often have the flexibility to offer higher leverage to builders in scenarios that traditional banks might not consider. For instance, they may extend loans for projects in areas like the village Lal Dora or Gram Panchayat, or for the construction of buildings without municipal-approved maps.

In the last few decades, several infrastructure finance companies have been formed, providing loans to builders. These project finance companies are well-funded by both corporates and the government. Consequently, they can offer financing of up to thousands of crores for viable projects. Moreover, for projects with strong market potential, promoters may need to contribute less equity, as infrastructure finance companies can finance up to 85% of the total project cost.

If infrastructure finance companies find a project promising, they can even invest in its early stages.

Real Estate Mutual Funds (REMFs) and many closed-ended debt mutual funds have a minimum lock-in period of 3 years. Sebi permits REMFs to invest in real estate companies through debt, equity, or directly in real estate properties.

These REMF actively seek investment opportunities that can deliver attractive returns to their investors.

ECB (External Commercial Borrowing) refers to commercial loans provided by foreign banks and lending institutions. Due to lower interest rates offered by international banks, ECBs come with reduced rates and more flexible repayment terms. Similar to corporates, builders can use ECBs, primarily designed for high-value loans.

Eligibility for ECB Project Loan for Builders:

• Minimum 5 years of experience in real estate projects.
• Proven financial track record with quality and timely delivery credentials.
• No defaults on financial commitments related to ECB regulations.
• Minimum project built-up area of 20,000 sq. m.
• Minimum capitalization of USD 5 million.

Relaxation for Affordable Housing Builders: No minimum area or capitalization requirements for affordable housing projects. These projects must allocate at least 60 percent of the permissible Floor Space Index (FSI) for units with a maximum carpet area of up to 60 square meters.

ECB Builder Loan Process:

1. Seek NHB (National Housing Bank) clearance, the nodal agency for ECB Builder Loans.
2. Once NHB approves, apply to RBI through an authorized dealer.
3. After RBI approval, proceed with the loan application to the external lending institution.

Foreign companies and investors can invest up to 100% in real estate projects through Foreign Direct Investment (FDI). If your project is promising, you can attract investment from foreign entities or groups. FDI regulations are simpler and more favorable than ECB.

Numerous investment bankers, private equity firms, and corporate investment entities have been actively participating in the real estate sector, particularly in housing projects. To address fluctuating demand and pricing, they often employ composite financing structures, combining equity with debt. Key domestic players in India include ICICI Ventures, IDFC, HDFC, IL&FS, Kotak Private Equity, Urban Infra RE Fund (Jay Corp), Indiareit (Piramal Group), and others.

If you have an impeccable financial track record, you may get approval from SEBI and RBI to issue retail as well as corporate bonds or fixed deposits. These instruments are typically utilized for raising funds exceeding 1000 crores.

If you require funds for the development of your projects, we can help identify a suitable builder or developer who may participate in your project through a joint venture. The shareholding in the joint venture is mutually decided by stakeholders.

Similar to investment bankers, many High Net Worth Individual (HNI) investors can invest in your project for equity ownership. They may engage in profit-sharing arrangements or for ownership of space in the developed project. A legally binding Special Purpose Vehicle (SPV) is necessary for such transactions.

Explore private funding or finance options where debt-to-equity ratios are minimal. Private financiers can offer up to 50% debt against 100% project equity. These agreements are usually individually negotiated and may involve higher interest rates than formal lending channels.

Such options are commonly used in stalled projects, where traditional funding avenues are unavailable or when funds are needed for a brief duration.

Typically, interest rates range from 13% to 15% on a reducing basis. However, the actual rate depends on factors such as the loan amount, builder profile, and the lending institution.

Smaller loan amounts funded by NBFCs for projects without map approval may attract higher rates.

Conversely, larger loans with all necessary approvals can secure lower rates from infrastructure finance companies, real estate or debt mutual funds. For even larger loan amounts, builders can apply for External Commercial Borrowings (ECB), where interest rates can be as low as 6% annually.

Lenders rarely offer project loans to new builder firms unless the promoter has experience in real estate. If you lack real estate experience, financial institutions may consider financing based on your current income and profile. In such cases, it is advisable to borrow money that you can repay with your current resources.

Many builder firms operate in village Gram Panchayats / Lal Dora areas or residential colonies. Often, residential units built in these areas are constructed without map approval from local authorities. You can get construction finance from a select few financial institutions that offer loans ranging from 5 to 10 crores for such residential projects.

Banks, NBFCs, and Housing Finance companies authorized to provide home loans can finance residential property purchases for your customers. Additionally, banks and NBFCs authorized for retail commercial lending can extend loans for the purchase of commercial properties.

Joy Loan is a Delhi NCR-based loan agency. With a minimum desired loan amount, we extend our services for across India, covering metro cities and tier-2 and tier-3 cities. While we accept loan sizes as low as 2 crores in Delhi NCR, for loan cases at greater distances, the minimum loan amount can be 15 crores.

At Joy Loan, we offer:

• Expertise: Over 12 years in retail loans with 1000+ satisfied customers.
• Flexible Financing: Conventional and non-conventional financing products.
• Quick Approvals: Fast turnaround for arranging funds.
• Competitive Rates: Industry-best interest rates.
• Personalized Approach: Tailored solutions to meet your needs.
• Hassle-Free Process: Secure and easy transaction process.
• Extensive Network: Associated with 50+ financial institutions. Open to further expend basis of needs.
• Long Repayment Period: Flexible repayment terms .
• Confidentiality: High professional confidentiality standard.
• Integrity: Built on reliability, transparency, and honesty.
• Nominal Fee: Small coordination fee payable on approval depending on loan amount and challenges.

Ready to Get Started? Submit your details for an appointment!