Large Cap Development? Recommend a Sinking Fund…

Access to commercial acquisition and purchase funding remains available. Because of globalization, from local and international lending entities, larger investment capital funds are secured. As a result, opportunity to secure lower cost loans and distribute risk serves to encourage this investment.

ADVANTAGE

With sinking fund loans, it is possible to expand project scopes to higher levels. Moreover, predicated on the lending program a project manager or Principal selects, success or failure of a project is determined. Most lending programs are bombarded with stringent regulation. Non-sinking fund loan programs come with controls and obligations designed to mitigate lender risk. Instead of lender advantages, compared to most lending programs, sinking fund lending programs place borrowers in the stronger financial position. For instance, if utilizing a sinking fund, for a $20 million-dollar commercial development loan ask, 2% of the loan amount (or $400 thousand dollars) need be deposited in an approved escrow account. Separate from other necessary due diligence; as in executive summary, business plan, Principal credentials and other ancillary or supporting documents, evidence of escrow deposit routinely facilitates loan approval. Conversely, with traditional and private equity financiers, this same loan ask would need have 20% (or $4 million dollars) deposited in a controlled escrow account-accompanied with hyper-critical underwriting mechanisms.

RISK

Because commercial lending programs come with exponential restrictions and conditions, underwriting requirements take a toll on project success and funding goals. Via debt structure, within a sinking fund program, the Principal is responsible for interest payments. Furthermore, during a 10-year interest payment period, this allotted time affords Principals opportunity to execute the project (without pressured debt obligations).

FLEXIBILITY

In the better interests of Principals, to maximize outcome of project, flexibility of securing funding (and lending terms) remains critical. But, with most commercial lending programs, because strict terms and qualifying conditions exists, limited flexibility (in underwriting). Thus, funding decisions are less inclined to meet fundamental needs of the project or Principal(s). By giving occasion to navigate a project, in the direction that best facilitates project requirements; as in acquisition, development, construction, etc. Sinking fund lending programs give Principals significant value. This value lessens lender creditors’ risk and allows Principal to effectively manage project (with limited lender oversight). Bottom-line, for larger capital needs, this alternative hybrid loan is deemed the better solution.

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