Based in New York, Global Capital Partners Fund, LLC (GCPF) offers real estate lending solutions to wide-ranging clients. The firm’s flexible financing facilitates the various commercial development phases, such as acquisition and construction. In May 2022, under Joe Malvasio’s leadership, Global Capital Partners Fund announced an extended program for affiliate brokers around the world.
The worldwide program promises to open new doors for affiliate brokers in partnering with GCPF and taking advantage of the firm’s dedicated client networks, PR resources, and in-house underwriters. The firm is especially seeking brokers with extensive networks and the ability to link funding mechanisms to well-qualified buyers.
One GCPF advantage is in connecting with potential borrowers who may have lacked traditional financing options in the past, but are trustworthy recipients of competitive hard money loans. The vision is one of making such loans available to all who have a realistic commitment to growth in real estate. One flexible offering that particularly benefits newer businesses is asset-based loans, which leverage existing collateral such as equipment or inventory. The net effect of this program promises to be rapid growth in GCPF’s international presence, which will bring it toward the level of penetration already witnessed across North America.
Construction projects are expensive, regardless of whether they are renovations, expansions, or new homes. Construction financing can be an optimal approach for obtaining the funds necessary for labor, building materials, and other expenses.
Construction financing is a loan used to build a new house from the ground up. Also known as a “self-build loan,” this short-term loan covers the project’s costs before securing long-term financing, and either the builder or house buyer can apply for it. Due to their perceived risk, construction loans typically have a higher interest rate than conventional mortgage loans. The loan period generally runs for 12 months, and following the construction completion, the loan is either converted to a mortgage loan or paid off.
A construction loan functions similarly to a line of credit. Rather than paying all expenses upfront, the builder receives a series of disbursements called “draws.” When the builder requests a new draw for the next stage, a lender inspector will visit the site to check on progress. The construction financing line of credit stays in place for the duration of the building process (four to six months for the average home and up to a year for a custom executive home).
Prior to breaking ground, both the house buyer and the builder should be familiar with the lender’s draw schedule, which details when and how the lender issues the disbursements. Typically, the borrower can make interest-only payments on the loan during construction, as the interest charged is only on the amount disbursed.
Various types of construction loans exist to satisfy the varying demands of prospective homeowners—most notably, construction-to-permanent and construction-only loans. Different choices exist for owner-builders and homeowners doing major modifications on an existing home.
As the name suggests, a construction-to-permanent loan finances the construction of a home and then converts it to a fixed-rate mortgage upon completion. This option is suitable for homeowners interested in avoiding closing expenses and securing home finance.
With a construction-only loan, the lender makes a short-term, adjustable-rate loan to fund the construction of a home. Following completion of construction, the loan must be repaid in full or converted to a mortgage. This loan is suitable for homeowners with a sizable cash reserve or who plan on repaying the loan through the sale of their first property.
Several key benefits can be realized with this type of loan. While banks will need borrowers to provide them with detailed plans for the project, construction loans have significantly more flexible terms and limitations than traditional loans. This flexibility enables house buyers to tailor their loan terms to the project’s requirements to a certain extent.
In addition, the borrower is not required to repay the loan in full until the new construction is complete. The bank only requires the payment on the interest of the disbursed amount during the build, which results in a smaller monthly payment.
Once construction is complete, the financing converts to a mortgage-like loan. This may benefit house buyers who do not have adequate funds for loan repayment within the loan’s short term. Additionally, the borrower can negotiate and lock in the loan interest rate.
Like any other financial product, construction loans have some drawbacks. While it may appear straightforward, qualifying for a construction loan is not a simple and easy process. Lenders usually demand stricter qualification requirements in terms of credit scores and down payment.
Construction loans are often variable-rate loans, with lenders adding a percentage point above the prime rate or the rate they charge their best customers. For instance, if the prime rate is 4.5 percent and the lender determines that the interest rate on the construction loan should be prime + 2%, the borrower will have to pay a 6.5 percent interest rate.
Selling and buying a residence can be a complicated process. Occasionally, a homeowner may be unable to put money down on a second property until the sale of their first home is complete. To finance the down payment on their new property, homeowners can work with their current mortgage lender to obtain a six- to 12-month loan to “bridge the gap” between the purchase of the new home and the sale of the old one.
Bridge financing is a temporary financing option available to homeowners until they successfully sell their current residence. The high-interest rates (typically 9.875 and 11%) and short-term nature of bridge loans make them ideal for those expecting a quick sale of their existing house.
Once the homeowner sells their primary residence, they can utilize the proceeds to repay the bridge loan, leaving them with only the mortgage on their new house. If, however, the borrower’s home does not sell during the brief loan period, they will be responsible for payments on their first mortgage, their new home loan and the bridge loan.
Bridge financing is not available to everyone. To begin with, the homeowner must have a substantial amount of equity in their current house to qualify. Because in many cases they can borrow up to the full amount for the new home, the math works only if the current home has this equity.
Additionally, the lender will look at the debt-to-income ratio, which is the amount of money the homeowner must spend each month, considering previous debts such as their present mortgage in relation to their income. It demonstrates to lenders that the homeowner is not taking on more debt than they can manage. Without a reasonable debt-to-income ratio, qualifying for a bridge loan can be difficult, considering the expense of two mortgages.
Finally, these loans are often only available to those with excellent credit histories and credit scores. While lenders’ minimum credit scores may vary, the higher the credit score, the lower the interest rate, and the more likely the chance to qualify for it at all.
The main advantage of bridge financing is flexibility. It gives homeowners short-term financing to fulfill current expenses and close on the new house swiftly. Furthermore, most bridge loans are non-recourse, which means the lender can only collect on the obligation by selling the property.
Flexibility comes at a cost, as bridge loans have a higher interest rate than permanent financing from a typical lender. Payments are often more significant than those for permanent financing due to the shorter loan periods. Due to the loan’s brief duration, lenders often charge higher fee’s but can be less rigid concerning late payments.. They are charging higher fees and penalties to compensate for this flexibility.
Homeowners also need to consider the additional fees, including facility or arrangement fees, legal fees, valuation fees, administration, exit and broker fees. To avoid any broker fee’s. Homeowners can go directly to a nationwide direct bridge lender..
Along with being more expensive, bridge loan repayment relies on selling the first home, which may not happen in the time required. If the house is unsold within the loan period, the homeowner cannot convert their loan to permanent debt and, in extreme cases, defaults.
As of the middle of August 2021, mergers and acquisition activity rose 24 percent for the last year. According to the data collected by Refinitiv, the number of deals has already reached $3.6 trillion and is expected to surpass December 2020 figures of $3.59 trillion. These figures are important because they are connected to acquisition financing, the process where a person or entity borrows money to purchase another business.
Today’s financial products offer entrepreneurs and other business owners various ways to acquire the capital needed to purchase a business. This financing usually comes from traditional means, such as financial institutions, specialized lenders, or private lenders. However, the borrower can expect to pay more for the loan with a private lender at higher rates.
Another source of financing is through a Small Business Association (SBA) loan. SBA offers loans that will cover 75 percent of the value of the acquisition between $150,000 and $ 5 million. The rates for these loans are competitive, with current rates hovering between eight to 10 percent, and the down payment might be as low as 10 percent. These loans require businesses to submit necessary information related to the size of the business. There are also limits on net worth, average income, and the overall loan size.
A debt security is another way to finance a business. This type of financing involves companies issuing bonds. Banks have regulations that must be adhered to, whereas the bond market has more flexibility. The target company can also be used to obtain asset-backed financing. The way it works is that the buyer shows that the company being acquired can be liquidated if it goes under. In essence, the buyer is borrowing on the company’s assets.
Using company equity to make a purchase is another method of acquisition financing. The buyers offer equity to the owners of the firm. This method allows for a smooth transfer of control in the process. One of the scenarios that might result is the two companies merge, creating a new entity that would own the equity. Alternatively, if both firms remain separate, then the target firm's value determines the equity share. Regardless of the scenario, the buyer benefits from the seller’s expertise and not paying out as much cash overall.
The buyer pays the target company owner a small down payment through owner financing and finances the rest or a portion through the seller. Then, the buyer makes installment payments to the owner. This method of acquisition financing works best during a seller’s market and allows the buyers to benefit from reduced costs and the seller to benefit from a stream of income.
Finally, a creative way to finance purchasing a business is through an earnout. This method involves paying a certain percentage of the target company’s value upfront and another percentage of the revenue for a certain term. For example, a company could pay the target company 20 percent of its value upfront and 30 percent of the revenues until the balance is paid off.
