Finance - Bridging Loan
The real estate development in Malaysia is supported by two crucial finance; i.e. Bridging Finance and End Finance.
Bridging finance is a loan amount provided to the developer on top of any other loan obtained for the project. It is usually given as a short period with higher interest rate subject to security provided, and usually provided after the planning approval or at the end of the completion of the construction works of the project.
Bridging finance is available in various forms; i.e. ‘term loan’ with a fixed repayment period, overdraft facility or a combination of both and can be arranged in the form of direct loans or “Syndication’ loan (indirect). Direct loan is provided by lenders direct to the borrowers without the involvement of third parties and the loan amount from the bank/financial institution is smaller with a lower risk. The indirect loan however, is obtainable when a group of commercial and investment bankers each agrees to give an advance portion of funding. It is usually provided for large scale project which needs ‘large-scale financing’. Traditionally, the financing is arranged by a single bank at a narrow interest rate spreads over the lender’s cost of fund. The differences between these two loans are the amount provided and the documentation.
End financing is a loan provided for the purpose of purchasing a property. Given usually after the Bridging Finance, its monthly repayment includes interest and principal payments based on the annual interest rate. This type of financing helps the potential buyers to pay the developer when the property units are still under construction.
The importance of these two financings for two types of development; i.e. Sell Then Build (STB) and Build Then Sell (BTS) can be illustrated as below:-
STB
(e)
Money
0
Time
End Finance
(b)
BTS
(i)
POSITIVE CASH FLOW
(+)
(a)
(g)
(d)
(f)
(ii)
(c)
(-)
Bridging Finance
Brief explanation on the graph for the two types of
Bridging finance is a loan amount provided to the developer on top of any other loan obtained for the project. It is usually given as a short period with higher interest rate subject to security provided, and usually provided after the planning approval or at the end of the completion of the construction works of the project.
Bridging finance is available in various forms; i.e. ‘term loan’ with a fixed repayment period, overdraft facility or a combination of both and can be arranged in the form of direct loans or “Syndication’ loan (indirect). Direct loan is provided by lenders direct to the borrowers without the involvement of third parties and the loan amount from the bank/financial institution is smaller with a lower risk. The indirect loan however, is obtainable when a group of commercial and investment bankers each agrees to give an advance portion of funding. It is usually provided for large scale project which needs ‘large-scale financing’. Traditionally, the financing is arranged by a single bank at a narrow interest rate spreads over the lender’s cost of fund. The differences between these two loans are the amount provided and the documentation.
End financing is a loan provided for the purpose of purchasing a property. Given usually after the Bridging Finance, its monthly repayment includes interest and principal payments based on the annual interest rate. This type of financing helps the potential buyers to pay the developer when the property units are still under construction.
The importance of these two financings for two types of development; i.e. Sell Then Build (STB) and Build Then Sell (BTS) can be illustrated as below:-
STB
(e)
Money
0
Time
End Finance
(b)
BTS
(i)
POSITIVE CASH FLOW
(+)
(a)
(g)
(d)
(f)
(ii)
(c)
(-)
Bridging Finance
Brief explanation on the graph for the two types of