Property financing beyond banks starts with a better-supported plan

You want to buy property, improve a building or replace an existing loan. The plan seems logical, but the bank does not make an offer. Perhaps the term does not fit, future income is not yet sufficiently evidenced, or the transaction falls outside the lender's preferences.

For an entrepreneur, it is tempting to approach the next party immediately. That can make sense once it is clear which problem another lender needs to solve. Without that analysis, the same application can easily be submitted again, with the same unanswered questions.

Start with the reason for rejection

Ask for a specific explanation. Rejection because a dossier is incomplete requires a different response from rejection because repayment capacity is insufficient. The type of property, a project's stage or a cross-border structure can also make assessment more complicated.

The Netherlands Chamber of Commerce, KVK, explains that lenders consider factors including cash flow, profitability, the entrepreneur and available security. An attractive property is therefore only one part of the story. The dossier must also show how obligations will be met during the term and what happens at maturity.

Compare the reason for rejection with your own assumptions. Is the income sufficiently substantiated? Is the equity contribution genuinely available? Is the proposed term realistic? Only once that is clear can you decide whether another lender, a different structure or an adjustment to the project is the best next step.

The funding requirement exceeds the purchase price

A property budget starts with the purchase but must extend to the point when the property independently generates income or is sold. The intervening period can require considerable funds.

Consider investigation costs, taxes and transaction expenses, works, furnishings, insurance and financing costs. Also allow room for uncertainty. A refurbishment quotation, for example, does not guarantee that all necessary works have been included.

A hypothetical purchase illustrates the difference. The purchase price is €600,000. For this calculation, assume €60,000 for acquisition and other transaction costs, €80,000 for works and €40,000 as a cash buffer. The total funding requirement is then €780,000. These cost figures are assumptions, not customary rates for any particular country.

If the entrepreneur contributes €280,000, a financing requirement of €500,000 remains. Had only the purchase price been considered, the works and buffer would have been overlooked. Those are precisely the items that determine whether the project can continue after completion of the purchase.

Show when money is needed and when it arrives

A total budget shows how much money is required. A monthly schedule shows when it is needed. That distinction is essential if a property is temporarily vacant, refurbished in phases or sold only after completion.

Develop at least a base case and a downside scenario. In the base case, the project follows the expected timetable. In the second, for example, works finish later or rental income is lower. Then identify who will cover the temporary shortfall and what resources are available for that purpose.

This also clarifies which term suits the project. A loan that matures before the anticipated sale or refinancing creates a dependency that must be addressed in advance. A possible extension is only a useful assumption when its conditions are clear; an expectation is not an agreement.

Which alternatives deserve investigation

Depending on the transaction, private financing may be an option. Assessment and terms are then discussed for each individual dossier. Cooperation with a co-investor may also fit, with equity and agreements on control playing a role. A combination of own funds and financing can be explored as well.

These routes have different consequences. A loan involves matters such as interest, repayment, security and term. An equity participation also raises questions about profit sharing, decision-making and the conditions under which a partner can exit. The choice therefore starts with which obligations and dependencies you are willing and able to accept.

Private financing does not automatically make an insufficiently substantiated project viable. It offers another way to assess the transaction and structure agreements. Property quality, available funds and the repayment route remain important.

Compare the proposal's total costs

The interest rate is visible, but it does not tell the whole story. Examine arrangement fees, advice and investigation costs, the cost of establishing security, any amortisation obligations and the conditions for early repayment or extension.

Suppose, solely as a calculation example, €500,000 remains outstanding for twelve months at 9% simple annual interest, without interim repayments. Interest would be €45,000. A one-off fee of 2% adds €10,000. Together, that is €55,000 before other costs. This is not an MZS proposal or an indication of current market rates.

An additional six months would add €22,500 in interest under the same interest assumption. Any extension fees are excluded. Such a calculation shows why delays must form part of the assessment. For any actual proposal, request an overview of both the amounts and payment dates.

Security and repayment answer different questions

Security gives a lender a means of recovery if agreements are not honoured. Meanwhile, the project's expected proceeds should support normal repayment. Discuss both the quality of the security and the income and final repayment.

For property, relevant matters include ownership, existing financing, valuation and the ranking of security interests. Have the legal arrangements reviewed by the appropriate specialist. A personal guarantee also requires attention to its potential effects outside the project.

The repayment route must be specific. Will repayment come from a sale, available funds or refinancing? What needs to happen first? Which party decides? And what is the alternative if the sale takes place later or a new lender is willing to provide a smaller amount?

What belongs in a financing dossier

A well-structured dossier helps a lender assess your plan and helps you recognise outstanding issues. Requirements differ between parties; KVK therefore recommends checking in advance which documents are needed. For a property question, the following is a useful starting point:

• A concise description of the objective, amount requested and preferred term.
• Information about the entrepreneur, entities involved and ownership arrangements.
• Details of the property, intended use and any tenancy agreements.
• A complete investment budget and a schedule of income and expenditure.
• An overview of own funds, existing debts and available security.
• The repayment route, principal risks and a downside scenario.

State what each assumption is based on. A specific quotation, an existing tenancy agreement and your own expectation are different types of information. Making that distinction visible prevents discussions from stalling over unclear assumptions.

From a financing question to a workable proposal

MZS Group helps entrepreneurs translate their financing needs into a clear proposal. We examine how the property, business, timetable and intended financing fit together. Where appropriate, we explore private capital opportunities and prepare discussions with the parties involved.

Do you have a property plan that is getting nowhere with the bank? Establish the reasons and set out your assumptions. An initial conversation with MZS can help identify which elements need clarification first and which financing route deserves investigation.