the future of the developer loan



Although its use dates back to the 90s, as a result of the increased use of the Internet, crowdlending as a form of financing for real estate projects has seen its rise in recent years, due to the slowdown in the economy. This type of participatory financing It is becoming an alternative to the traditional one and could have special relevance in
the post-Covid era
, in which developers are already noticing the greatest restriction on bank loans.

When planning a real estate project, the developer traditionally had two main financing channels: that of banks and investment funds. With 'crowdlending' you can complete, or even replace, those other two forms of financing that entail disadvantages for the promoter that are sometimes insurmountable.

With regard to bank financing, in addition to the current greater restrictions on granting loans, the developer has the disadvantage that entities usually require a pre-sales volume of at least 30%. This type of financing enables the construction of the development, but not the purchase of the land, and also the funds are granted as the works progress and are certified.

On the other hand, the financing of investment funds, which comes before the bank loan, has the disadvantage of some short return times, with the addition that for business strategy reasons there is usually the condition of financing a minimum amount, or that leaves smaller projects out of this option.

To these inconveniences has been added
the economic crisis generated by the pandemic
. According to the Bank of Spain's economic bulletin for January, «there are signs of a certain tightening in the criteria for granting loans, linked to the greater concern of financial institutions about risks ”.

Compared to traditional financing, the 'crowdlending' option has been gaining strength in recent years and is presented as a real option for financing real estate projects.

Participatory financing with counterpart

The 'crowdlending' is based on participatory financing, in which three figures intervene: the promoter, the investors and one virtual platform registered in the Special Register of Participatory Financing Platforms.

Despite being a type of 'crowdlending', in which patrons do not have to receive financial compensation for their donation, and which may be focused on project sectors in which an economic return from the company is not expected in many cases. investment, in the specific variant of 'crowdlending' investors lend their money and await its return along with the agreed interest.

Both natural and legal persons can invest in a 'crowdlending' project, an activity that in Spain is regulated, albeit briefly, by the Law for the promotion of business activity. The legislation distinguishes between accredited investors, legal persons with a maximum contribution limit per project of up to five million euros, and the not accreditedMost of them have a ceiling of 3,000 euros per project and 10,000 euros in the same platform.

In the case of 'crowdlending', the loan repayment term usually covers up to four years, and the interests received by the investor are higher the more the risk of the operation increases and the longer the repayment period.

Advantages and disadvantages of 'crowdlending'

Ferran font, Director of Estudios de, comments that 'crowdlending' offers real estate developers a series of advantages in relation to traditional financing methods. It is, to begin with, a more flexible form of financing, that does not require a minimum investment and that allows the promoter to obtain funds without having started the project.

On the other hand, it carries the advantage that the promoter controls all aspects of the project; and also, in case of not obtaining the necessary financing, you can redesign your business or marketing strategy to try your luck again. However, this route also entails some disadvantages, including the longer time required to obtain financing when compared, for example, with a bank loan.

Also, building the marketing campaign you need to attract investors can be a major effort, and you have to deal with investors on your own.

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