For borrowers who already have their own business, a developed business, there is a special type of loan – investment. Conditions for obtaining it vary depending on the circumstances, but the observance of one is always necessary. An entrepreneur should have a developed investment project. Actually, that is why not only they will not be given a credit for investing in a business for beginners. They just don’t need it yet. An investment loan is a loan that has a number of properties that together make it special:
- Long term Not all long-term investment loans (for example, a permanent credit line for the regular purchase of working capital), but any investment loan is long-term, since it is directly related to the strategic development of enterprises through the implementation of an investment project.
- Special purpose. Different types of this loan have similar objectives, which consist in financing not just the expansion of enterprises, but their qualitative change (the emergence of new partners, the complication of production, the retraining of personnel, the purchase of new licenses, etc.).
- Sizes of sums. Investment lending a priori does not imply small loans due to the specifics of the objectives.
- Certain conditions that must be met to get a loan. Mainly, it is a carefully thought out and planned project, a detailed analysis of the current state of the business and forecasting the potential profitability from introducing a new project into the “body” of the business.
- Ways to repay the loan. Negotiated individually. One has only to say that in this sector of crediting differentiated payments prevail over annuity payments.
The project implies a new step in the development of enterprises. Entrepreneurs decide what changes it is time to make a business. This may be the purchase of new high-tech equipment or new production facilities, investment in staff expansion and additional training of existing staff. In general, the essence of the project largely depends on the type of investment lending. And it is classified into three large types:
- Investment lending as such.
- Project financing.
- Financing construction projects.
A distinctive feature of this type is a detailed monitoring of the current state of the enterprise, after which a forecast is made on the basis of the obtained data. The actual and potential (after investment) profitability, the prospects of innovations, market conditions in the foreseeable future (the sector of the economy in which the company is involved) and much more are being studied.
An important point is that a bank with such long-term lending reduces its own risks to a minimum. Because the calculations are conducted in such a way as if the company had to pay for the loan received in the next few years, and its income would not have changed at all. In some cases, for safety net, they even accept some negative dynamics in income.
That is, here the income from the business must be such that the entrepreneur can pay off the profit already available to the bank. But it is believed that the introduction of investment projects must necessarily increase the profitability of enterprises. Such investment crediting implies, as a rule, the purchase of new equipment, transport, work space. It is easiest to take it to an entrepreneur compared to other types. Indeed, in this case, the bank risks the least. Predictive calculations are conducted according to the most pessimistic scenario. The bank will incur losses only in the event of an unexpected deepest crisis of the enterprise, up to a complete collapse and bankruptcy. But if this probability is quite high, then monitoring of the business will almost certainly show it. And the bank will simply refuse to issue a loan.
Here the bank already risks to a greater degree, since in this case the enterprise at this particular moment does not have such a profit, which would be enough to repay the loan. But it is believed that after the implementation of the investment project, the profitability of the business will increase dramatically, which will allow to pay the bank debt. It is clear that this should be a very convincing, interesting and promising project, so that the bank agreed to act not as a beneficiary, but as an investor in the borrower’s business. For the described situation is most correctly called not lending, but investing. The bank gives money for the project, and then gets it back with interest due to the income from the project implementation.
Financing construction projects
Construction attracts banks in the same way as entrepreneurs. Real estate is always in demand and is a valuable investment. Therefore, a client can take a lot of money from most banks in the country for the construction of some object (residential or industrial). But in order to receive these funds, the entrepreneur himself must very significantly invest in his project. Perhaps this type of investment lending, among other types, is the most costly for a borrower. Even before contacting the bank, the client will have to buy the appropriate piece of land on which the construction is planned, or take it on a long-term lease.
The borrower will have to provide the bank with documents confirming his ownership of the land, or a lease agreement. Also required are documents on design and estimate work and a building permit as such. It is clear that the entrepreneur carries out all these preparatory activities at his own expense. After their completion, the bank will evaluate the project for the construction of a residential or industrial building in terms of its value as capital. It will take into account what the entrepreneur is going to build – a hotel or a production hall. Having determined the potential profitability of the project, the bank will issue a corresponding sum of money.
Bank requirements to the borrower
In this situation, the credit institution makes to the client not only the usual, but also some specific requirements. This state of affairs is due to the fact that a loan for investments implies large sums of money. So, here are the conditions that the bank puts the entrepreneur:
- well-developed, structured, grounded by mathematical and economic calculations business plan, where the objectives of the project are clearly disclosed;
- analysis of the relevant sector of the market, designed to prove that the implementation of the project will indeed lead to an increase in the profitability of the enterprise (s);
- the provision of contracts with partner companies that are responsible for the direct implementation of the project (suppliers of new equipment or manufacturers of such equipment, companies selling licenses, etc.);
- a certain level of income is obligatory (its size depends on the type of investment crediting chosen);
- an entrepreneur is required to have a certain financial participation in the implementation of his project, i.e. a down payment, the amount of which can vary from 25% to 50% (as an individual agreement, the bank may include as part of the contribution those costs that the borrower incurred during the preparatory stage)
- the presence of the general mandatory condition – the provision of property from the client as a pledge (such property at market value must be equivalent to the loan amount);
- the bank will definitely check whether the businessman has experience in the implementation of investment projects (it is desirable that he has, but everything happens once for the first time);
- the bank will check all market entities that are directly or indirectly related to the borrower’s business;
- the loan period, even with a state subsidy, cannot exceed 10 years;
- most banks support the possibility of issuing a loan in foreign currency (US dollars, euros), for example, if an enterprise needs to purchase goods abroad;
- payment schedule and types of payments are negotiated individually;
- Sometimes an investment loan can be obtained for settlement with another bank, where a similar loan was taken (refinancing), but this is rare, since it is believed that the project should generate increased income, and once refinancing was required, this means that the reliability of the client is already in question.
Short-term loans as an analogue
You can, of course, resort to untargeted loans for a short period. They are issued much faster and easier, and the package of documents is many times smaller. Yes, and the cost of registration is many times lower. Take at least the fact that long-term lending requires the client to pay for the registration of each pledge. For example, the pledge of an apartment, warehouse and expensive cars – for the registration of the burden on each property will have to pay separately. However, one small loan is not enough. You have to take a few loans in different banks, or alternately a loan in one bank. The first option is the most unacceptable, since it is well known that banks do not favor customers who have outstanding loans. The second option is more suitable, but there is always a risk that the bank will refuse to issue the next loan. And the project “hangs”, as they say, in the middle of the road. Sometimes entrepreneurs even have to resort to freezing the project, but this is not always possible.
Offers from some banks
Today, almost all banks are involved in investment lending. Of course, Sberbank offers a wide range of services in this area. The conditions of the main bank of the Russian Federation are as follows:
- crediting period – up to 10 years;
- the minimum loan size is 2.5 million rubles, and the maximum – 200 million rubles (in Moscow and St. Petersburg – 600 million rubles);
- the borrower’s own financial participation – 10% of the amount issued by the bank;
- Sberbank works with three major currencies – the ruble, the dollar and the euro;
- annual interest rates start at 13.22% (the rate also depends on the chosen currency);
- collateral or its alternative – the guarantee of other market entities or business development funds.
But the conditions set by the bank Russian Credit:
- crediting period – up to 5 years;
- credit “ceiling” – 100 million rubles;
- interest rate – individual selection;
- special condition – the company must operate for at least 2 years at the time of application;
- pledge and / or guarantee – similar to Sberbank.
Investment projects – this is a more serious level of business than its organization from scratch by beginners. This article is intended for new entrepreneurs, so that readers get a rough idea of what they may have to face in a couple of years.