Should I sign the loan agreement?
1. Personal guarantee
It is very common to require a personal guarantee from the director in order to guarantee a loan. This obliges the manager to his own assets and demands that he personally take over the repayment of the debts if these are not paid by the company. This personal guarantee must be accompanied by a handwritten text stating that the director is in control of the scope and amount of the commitments made. In the event of death, the guarantee passes to the heirs at the time of the succession if the succession is accepted. Please see our dedicated article on the subject for more details.
2. Duration or maturity of the loan
The term of the loan, also known as the maturity, is determined before the transaction. It tells the investor the maximum term at which the invested capital and interest will be repaid over the period. In 2019, the average runtime for Raizers was 20 months.
In the context of crowdfunding real estate, the issuer is the developer or real estate agent. It issues a debt that investors subscribe to. The investor lends money to the issuer, who in return pays interest over the term of the loan and repays the invested capital.
4. Depreciable loan
An amortization loan is a loan where the principal is paid back in installments over time. During the entire term of the loan and according to a predetermined schedule, the borrower repays part of the principal with interest. He fines against the loan or the credit.
Example in the context of a real estate crowdfunding operation: the investor borrows € 1000 at 10% per year for 24 months, annually depreciable, so the property developer will have to pay:
- 600 € at the end of the 1st year (500 € capital + 100 € interest, calculated as follows with 10% x 1000 € capital over 12 months)
- 550 € at the end of the 2nd year (500 € capital + 50 € interest, calculated as follows with 10% x 500 € capital over 12 months)
5. Borrowing in fine
The loan or fine loan is a loan whose principal is repaid in full when due. Interest can be paid in multiple installments or when due.
Example related to a real estate crowdfunding operation: The investor borrows € 1000 in the form of a fine of 10% per year for 24 months, which the developer has to pay:
- 100 € at the end of the 1st year (i.e. 10% interest x 1000 € capital over 12 months).
- 1100 € at the end of the 2nd year (1000 € capital + 100 € interest, 10% x 1000 € capital over 12 months)
6. Withholding tax or PFU
In the case of individual investors resident in French territory, the interest received in connection with a bond issue is subject to the Prélèvement Forfaitaire Unique . It is divided into two parts: social security contributions (17.2%) and income tax (12.8%). In both cases the deduction is made at source (organized by Raizers) and the interest received from the investor is tax free.
7. Guarantee on first demand
The first-demand guarantee is a security that obliges the guarantor (in this case the borrower) under an obligation signed by a third party (in this case the investor) to pay the amount owed either at the first request of the obligee or to be reimbursed according to previously agreed terms. This guarantee is on par with a personal guarantee when given by a company. Please see our dedicated article on the subject for more details.
8. Financial completion guarantee
The financial completion guarantee is insurance given (by a bank or an insurer) to a property developer on behalf of the buyer as part of a compromise on the property to be built. This insurance provides a guarantee that in the event of a default by the developer, the construction will be completed and the goods purchased will be delivered.
It is issued by an insurer who, in return for a percentage of the construction costs and several guarantees (mortgage, guarantee on first demand, personal guarantee from the manager, etc.), agrees to pay for the construction in the event of default by the client. Note that GFA is not mandatory for commercial real estate transactions. However, it is mandatory for residential properties.
The mortgage is a security on an existing property (land, building, house ...) that allows the lender to seize the property on their behalf in the event of insolvency.
The mortgage can be ranked first or second, the rank indicating the ranking of creditors for repayment.
The senior mortgage ensures that in the event of default, the creditor will be paid first. In practice, this means that the obligee will be the first to be paid by the notary once the funds are available. When a creditor takes out a mortgage on a property that has already been mortgaged, it is called a second mortgage and they must wait for the first mortgage to be paid off before it can be paid off.
10. Interest and Coupons
A coupon is attached to a bond. It represents the interest paid to the holder of that bond, in this case the investor. Historically, bonds were printed on paper and given detachable coupons, with the payer withdrawing the corresponding coupon as soon as he redeemed it.
To illustrate, let's take the same example as above: on our € 1000 bond with 10% interest over 24 months, a coupon is 1000 x 10% or € 100 multiplied by two as this interest rate is valid over 2 years. This bond is therefore equipped with two € 100 coupons.
11. Bond, bond issue and bond contract
A bond is a debt that is issued by a legal person (here a company) in order to finance itself with investors, the so-called bondholders. Bonds are financial securities that represent a debt for the company that issues them. As part of a bond loan, the company and the investor sign a bond agreement that formalizes the loan and specifies the due date (term of the loan), the interest rate and other obligations for both.
12. Income or Profitability
When raising funds for a real estate project, an interest rate is negotiated in advance between Raizers and the real estate developer. This rate represents the return on the invested capital, which is paid to the investor either at the regular maturity or at the end of the contract (loan term). Example: For € 1000 invested with a return of 10% over a period of 24 months, € 100 will be paid out to the investor at the end of the first year and € 1100 at the end of the second year. This means that € 200 in interest is paid.
13. Mass of bondholders
The bondholder pool represents all bondholders of a single project as an independent unit. The representative (s) have the power to make decisions in the common interest on behalf of the crowd.
In a project that is funded on our platform, Raizers represents the bulk of bondholders.
14. Liquidity Risk
In every transaction, the investor's attention is drawn to the fact that investing in bonds presents a liquidity risk. Indeed, while these bonds are freely transferable, there is no marketplace in which they can be easily sold. It will therefore be necessary to find an investor on your own who is willing to buy back these bonds.
In practice, this means that the investor, unless he can find an external buyer, can only get his capital back on the repayment date specified in the bond agreement.
15. Civil construction sales company
A civil construction sales company (SCCV) is a type of company that is widely used by property developers. The SCCV works like a classic civil society, its corporate purpose is specific. The SCCV is not directly imposed, it should be transparent. In fact, taxes are paid by the parent company if owned by another company or on each partner's income if owned by one or more individuals. Its duration is a maximum of 99 years, but ends as soon as its purpose has been achieved (e.g. end of construction and sale of land).
In the case of a bond loan, it is the holding company or SAS that owns the SCCV that bears the loan.
VEFA is the acronym for Vente en l'Etat de Futur Completion. For a buyer, it consists in buying an apartment according to plan and therefore not completed. The VEFA is a contract between the buyer and the developer, which guarantees the buyer the completion of the building and enables the developer to pay according to the progress of the work. For this purpose, a payment plan is established by the property developer and the remaining amount is paid when the property is handed over by the buyer. If VEFA sells residential property, the property developer is obliged to sign a GFA (see definition) in order to guarantee the completion of the work.
In addition, there are tax benefits related to the purchase as VEFA: reduced notary fees as it is a new property (2 to 3% versus 8% for old properties), the Pinel law, which allows you to benefit from tax benefits benefit by renting the property for at least 6 years, or even interest-free loans to finance up to 40% of the purchase of a new property, the cost of which is borne by the state.
 This rate is set every year by the Finance Act
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