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Equity
Financing
If you
are planning to purchase a commercial property you should have some
knowledge about the financing option available so to make the best
choice.
Two
kinds of financing options
Mezzanine
Financing
Equity
Financing
Equity
financing is generally done by those who are looking for a high loan
to value ratio.The most important thing about equity financing is
that the profits are shared but it is a risky one where the return is
not guaranteed.The equity financing is of various forms namely
Typical
equity
In this
case the owner has the title of the property.The investor can control
certain actions only to some extent.It is often said that if more
money is invested from your hands the more control you will have on
the project and the better returns
Equity
structured as debt
In this
case the equity investor wants the same security as the investor ie a
guaranteed one.So in case of bankruptcy he is well protected.
Promote
structure and waterfall
In
certain cases the investor invest on the capital and after a certain
target they give the developer additional incentive known as
“promote”.This promote comes into existence after an
expected return.
Pros
of equity financing
The
investment from the starters hands is less
It
does not possess a debt forgiveness tax liability in times of risk
It
does not require any personal guarantees
The
documentation procedures are easy and quick
It
does not require an intercreditor or subordination agreement with
the senior lender
More
equity generally results in better senior loans
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