'A clear and concise marketing plan that will deliver the projected return.'

It sounds simple... yet we see so few good marketing plans in loan applications. Many don’t include one at all!

The fundamental elements of a loan application are well understood by most developers and don’t vary much. They comprise:

• Your financial position and credit worthiness  These are what they are. You can’t gild the lily trying to make them appear better than they are. (Although some try, and fail).
• Gross realisation values and project expenses  Completed product prices, land value and associated build costs are all fairly defined values. They will be determined by the market (via pre-sales and tenders) and certified by the relevant market experts (valuers and QS/engineers).
• The project team and past experience  Again, these are relatively pre-defined components of your finance application. While you can enhance them with the introduction of expertise and testimonials, for the most part the key components have been locked in by the time the application is submitted.
• The capital structure and project feasibility  The combination of debt, junior debt and equity is generally driven by how much equity you have, or choose to contribute. The project feasibility draws on the known elements of costs and end values, and the time required to undertake the process. While many rush this part of the process, the one thing you can’t buy is time. But if you understand the market you are operating in, you can use it to your advantage!

As lenders contemplating financing and/or investing in your project, the key element we want to see, and what is often missing from applications, is explaining to us how and to whom you are going to sell the product.

And it is not just your ability to sell the first 60% of the project in order to repay our funds that is critical, but how you will sell the last unit of stock, which represents your profit, because that is what will convince us that you fully understand the deal you want us to invest in.

So let’s look at what we actually want to see:

• Where will the demand come from?  Too many developers fail to understand the dynamics of supply and demand and who will be the buyers.
• Why will they buy it?  How does your product meet the identified demand, and how have you gone about satisfying yourself this is so? Again, too many developers follow the herd. What we as financiers/investors want to see is a considered approach based on an understanding of the market and economic factors. This doesn’t have to be a costly exercise with massive reports. Quite simply, we want to see that the developer understands the market in the area he is choosing to develop, and that he has created a product designed to meet the relevant drivers.
• Why is yours better than the one down the road?  Again, this is simply another way for you to demonstrate that you understand what the market wants and what the competition is doing. Frankly, if you don’t know the answer to this questions, you should be seriously considering why you are a developer.
• What will they be willing to pay?  Can you show evidence of similar product being purchased for that dollar value? Often the formal valuation report will be a precondition to settlement. In its absence, we are looking for evidence to support the proposed gross realisation values in your feasibility study. Being able to point to recent and relevant market sales in support of your assumptions is another way of demonstrating your professionalism.
• How much will it cost to secure the sales, and how will that be funded?  In order to attract buyers, marketing collateral, an on-site sales office, sales agents' salaries, marketers' fees (up front and back end), are all important considerations that many developers pay little consideration to. We cannot stress enough just how important these elements of the deal are, and how your understanding of them influences credit and equity investment decisions. How you propose to fund these costs before and during project construction is key to fully understanding the real profitability of the project.

If you can demonstrate a clear understanding of these marketing and sales-related processes, you will get the attention of a lender or equity investor. Once you have our attention, it’s a much easier process to gain the approvals you are seeking.

This article was written by Dan Holden of HoldenCAPITAL. HoldenCAPITAL are a bespoke construction finance firm. They arrange construction finance and invest in projects through their equity fund, Queen Street INVEST. To discuss your project finance requirement call (07) 3171 4200 or visit www.holdencapital.com.au