Sources of real estate project financing still remains a major challenge for potential home owners and real estate investors who want to get into real estate. Whether you want to build a home for yourself of envision building a commercial building, getting an institution to work with you financially will be one of the biggest challenges to work through.

Most successful real estate moguls have amazing stories to share on how they struggled to get someone to believe in their vision and fund them. The good news is there is always a happy ending to these tales for those who giving up is not an option.

You need to be ready to knock a few doors and get turned down a number of time, way too many times. You need to be ready to tweak your plans, get more information, play the waiting game and knock even more doors.

It is good to keep in mind the 5 C’s of credit when seeking a real estate development loan. These are Character, Capacity, Capital, Collateral and Condition. Financial institutions will use these to analyze the credit worthiness of an entity.

Where to go when Looking for Real Estate Project Financing

  • Banks

Banks are the biggest funders of real estate projects, both commercial and residential. The Central Bank of Kenya has licensed 43 banks to operate in Kenya. All these banks have different products available that you can take advantage of. The interest charged by the banks depends on current regulations.

There are many factors that influence one’s ability to get a loan from a bank. Generally, banks are happy to fund established companies or individuals who are at senior positions of employment, thus guaranteed income and demonstrated ability to pay the loan.

For commercial projects, banks shy away from funding speculative projects. It is imperative for you to carry out proper and extensive feasibility studies that demonstrate the viability of your project.

  • Private Equity

Private equity simply refers to getting funding from individuals or organizations in exchange for a percentage of stake in your project. The term joint venture has become very common when it comes to projects. A good example is where one party comesReal Estate Project Financing up with the land and another party comes up with the financing and the 2 parties agree on how to share stakes for mutual benefit.

Private equity arrangements have allowed locals to partner with overseas companies and individuals who can access credit at a much cheaper interest rate and bring that advantage on board.

Private equity can also involve exchange of professional services for stakes in the project. This is where professionals such as architects, engineers, project managers and contractors offer their services without getting paid but instead earn a stake in the project.

  • Personal Savings

Personal savings of an individual or a family can be used for investing in real estate. Some families are lucky enough to have huge amounts of savings. Others come across inheritance or some windfall gains that they can use.

Other families holding huge tracks of land in lucrative locations easily sell some of their land and invest the proceeds in other projects.

In case your savings are not enough, you can use other means to boost up such as joining and borrowing from a bank, a cooperative society or an investment club. Many of these institutions are happy to work with investors who can raise a good percent (at least 10%) of the project cost. The reasoning behind this is when you invest your own personal money in a project, you will work that much harder for it to succeed because of your personal stake.

  • SACCO’s (Savings and Credit Cooperative Organizations)

SACCO’s have become financial powerhouses, able to handle and fund mega projects through their own projects or funding individual members. Organizations or individuals can join a SACCO, save with them for a stipulated amount of time and be able to borrow funds for their project at a more affordable interest rate.

SACCO’s tend to be more flexible when it comes to lending to their members. For most SACCO’s, individuals borrowing have other members acting as guarantors for them. Their savings are also taken as part guarantee. Many SACCO’s are now accepting collateral for loan advancement.

  • Chama’s

Chama’s are basically informal micro saving groups of individuals who come together to save and investment for the benefit of the group members. Historically, chama’s were used by individual for simple savings but over time, some have evolved into serious vehicles for saving and investing with significant borrowing and lending capacity.

Many Chama’s have taken the route of registered their entity either as a cooperative society or a limited liability company that allows them to operate on a much wider financial scope.

For someone looking to invest in real estate, they can look for a Chama that shares the same goals and work with the members towards the shared goal.

  • Investment Clubs

Similar to SACCO’s and Chama’s, these are organized groups of individuals whose sole objective is investment. These groups look for every opportunity to invest their money for the benefit and profit of their members.

Members of these groups earn dividends from their investments as well as earn stakes in the projects undertaken by the club.

If you are looking to enter into the commercial real estate space, put your paper work together and do your homework thoroughly. Build a solid business plan, putting yourself in the shoes of the investor and answering all the questions that arise with clarity and data.

No one will listen to you without solid data and a feasibility study. Hire the right brains to help you with this. Remember, it’s is not only the interest of the lender that the project succeeds, but your interest as well.

To access funding for a domestic project, demonstrate beyond any reasonable doubt that you have the capacity and the intent to pay the loan back as required.