Big projects require a large inflow of money in every phase of the project, which can be funded through the Promoter’s Equity, Sales Receivables, Construction Loans, the finance raised through company NCD, and Joint Ventures between builders or contractors. These funding tools can be infused at different stages of project development and in various proportions. In the early stages of the project, promoter equity can be infused and after that, receivables along with term loans can be sold. Similarly, a joint venture can be materialized before launching the project for seamless mobility of funds. For the advanced stages of the project, a last-mile funding option will suffice for the funding requirement. Now, let’s explore all these funding tools in detail:
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- Promoter Equity: This is the part of the funds from the promoter or builder who launches and develops the project, and also earns from the project. As per project financing rules a promoter equity must be equal to or more than 20% of the total project cost to make an ideal situation, but can go up to more higher ratio. This means if the total project cost is, say, Rs. 100 crores, then promoter equity will be a minimum of Rs. 20 crores.
- Sales Receivables: These are the funds that are collected through the sale of the project units, which can be reinvested in the project and are known as sales receivables. This largely depends upon the sales capacity and marketing team of the builder company to promote the project and raise large amounts in the form of sales receivables which can be further utilized in the financing of a big project.
- Construction Loans: Construction Loans are one of the best tools for funding a big construction project, as they come in large amounts and can be easily raised through local banks & financial institutions that are interested in deploying big funds in real estate projects. These construction loans can be raised anywhere from the initial stage to the advanced level of the project, as per the requirement. These days, a lot of financial institutions finance a minimum funding size of Rs 25 crores in a single project, which goes up to 1000 crores.
- Finance Through NCD(Non-Convertible Debentures): In the current days, a lot of fund houses in India are interested in providing large amounts of funds for real estate projects in the form of non-convertible debentures(NCD) of builder companies. These fund houses take responsibility for financing up to the completion of the project and provide whatever is required, from small to large amounts of funds, so they prove to be a good option for construction project funding.
- Joint-Venture(JV): This is one of the traditional ways of arranging the funds for big construction projects where two same-minded people with similar financing capacities enter into a temporary partnership for financing a particular project. In this way, two companies create a big money pool to finance a project, and in the end, both companies take exit with their share of profits as per the Join-Venture agreement.
