How Do I Satisfy the Lender’s Requirement That I Provide 20% of the Needed Funds for a Development Project?

This is the typical syndication model. If you don’t have your own funds to cover the balance between the construction loan and the funds needed to complete construction, you will likely need to raise those funds from investors under an appropriate securities exemption. You would raise money from investors by selling ownership interests in your company. This could be from a single investor or from a group of investors who make contributions to your company in exchange for a share of the ownership in the project. In exchange, investors will be entitled to a share of the profits and/or a fixed (“preferred”) return on their investment.

Most lenders won’t allow you to “borrow” the money from investors, as most commercial loans prohibit subordinate debt. The lender may want to underwrite any investor who acquires more than a certain percentage of your company. For commercial loans, this may be as low as 10%. Before closing on the construction loan, the lender will want to see how much money you have raised, who the investors are, and their percentage interests in your company so they can make this determination.