If you’re new to the world of development finance, understanding all of the jargon can be daunting. To help you get started, we’ve put together a list of essential development finance terms that you need to know.
- Mezzanine Financing: All you need to know about mezzanine financeis that it’s a type of private equity investment that is typically used to finance the purchase or expansion of a business. Mezzanine financing is typically structured as a loan that is secured by the assets of the company.
- Bridge Loan: A bridge loan is a type of short-term loan that is typically used to finance the purchase or construction of a new home (or perhaps in this case, a commercial development project). Bridge loans are typically interest-only loans with terms that range from six months to three years.
- Construction Loan: A construction loan is a type of short-term loan that is typically used to finance the construction of a new home or commercial project. Construction loans are typically interest-only loans with terms that range from six months to one year.
- Hard Money Loan: A hard money loan is a type of short-term loan that is typically used to finance the purchase or renovation of a residential or commercial property. Hard money loans are usually interest-only loans with terms that range from six months to three years.
- Equity Financing: Equity financing is generally used to finance the purchase or expansion of a business – it’s structured as an investment in the company, and is typically made in exchange for an ownership stake in the company.
- Venture Capital: Venture capital is a type of private equity investment that is typically used to finance the start-up or expansion of a business. Venture capital investments are usually made in exchange for an ownership stake in the company.
- Angel Investor: An angel investor is an individual who provides financial backing for small businesses and start-ups. Angel investors typically invest their own personal funds and are not affiliated with any venture capital firms.
- Crowdfunding: Crowdfunding allows businesses and individuals to raise funds from a large number of people in exchange for equity or debt securities. Crowdfunding platforms such as Kickstarter and Indiegogo allow businesses and individuals to solicit funds from the general public in exchange for rewards or equity stakes in the business.
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The more you know, the more prepared you are for a lucrative career in property development
Developing your real estate project can be expensive, so it’s important to be aware of all your financing options before you get started. We hope this list has given you a better understanding of some of the most common development finance terms.
