The field of corporate finance deals with the decisions of finance taken by corporations along with the analysis and the tools required for taking such decisions. The principle aim of corporate finance is enhancing the corporate value and at the same time reducing the financial risks of the company. In addition to this, corporate finance also deals in getting the maximum returns on the invested capital of the company. The major concepts of corporate finance are applied to the problems of finance encountered by all type of firms.The discipline of corporate finance can be split into the short term and the long term techniques of decisions. The investments of capital are the long term decisions relating to the projects and the methods required to finance them. On the other hand, the capital management for working is considered as a short term decision that deals with the short term current liabilities and asset balance. The main focus here rests on the management of inventories, cash and, the lending and borrowing on a short term basis.Corporate finance is also associated with the field of investment banking. Here, the role of the investment banker is the evaluation of the various projects coming to the bank and making proper investment decisions regarding them.The Capital Structure:A proper finance structure is required for achieving the set goals of corporate finance. The management has to therefore design a proper structure that has an optimal mix of the different finance options that are available.Generally, the sources of finance will comprise of a mix of equity as well as debt. If a project is financed through debt, it results in causing a liability to the concerned company. Hence in such cases, the flow of cash has various implications regardless of the success of the project. The financing done by equity carries a lower risk regarding the commitments of the flow of cash, but the result of this is the dilution of the earnings and the ownership. The cost involved in equity finance is also higher in the case of debt finance. Hence, it is understood that the finance done through equity, offsets the reduction in the risk of cash flow. The management has to hence have a mix of both the options.The Decisions of Capital Investments:The decisions of capital investments are the long term decisions of corporate finance that are related to the capital structure and the fixed assets. These decisions are based of several criteria that are inter-related. The management of corporate finance attempts to maximize the firm’s value by making investments in the projects that have a positive yield. The finance options for such projects have to be done in a proper manner.
If you are new to financing real estate development you’ll have to change your thinking. No doubt you are very familiar the 15 to 30 year mortgage finance tool.You may even have used a ‘Line of Credit’ as an alternative way of financing as you increase you cash wealth. Both of these methods are used primarily for financing real estate property acquisitions.I can hear some of you say, “But I used these for redeveloping a house or a few apartments.”Well that is not what we, in the development world, mean when we say real estate development; we call that a renovation or a refit.So financing real estate development is financing a completely new development and mortgage financing is not the correct tool for the job.So How Do They Differ?The easiest way is to give you a quick comparison between a mortgage financing and financing real estate development.With a mortgage you essentially are buying property; be it land or a residential house on land, or an apartment … and you are buying it to own for the long term; that is 15 to 30 years.When financing real estate development you are looking at financing an entire project, of which the land is one tangible part and the other part comprise building Plans.At completing of the project you plan to sell all of what you have created and repay the financial institution what you borrowed for financing real estate development.You might ask, “What if I want to keep some of what I have created and not sell everything? Great question.The answer is simple. All the money you get from the sales of your product is paid back to the financial institution and you then take out a long term mortgage for the product you want to own long term.Just to be clear on that pointAll of the products you sell will include a profit. So by careful calculation and planning you can balance the number of products you retain, so that your profit is left as equity in the investment and the amount of mortgage borrowing is minimal.Depending on your taxation rules in your country, leaving money in the investment as suggested, is a way of not ‘realizing’ your profit in a cash form and so attracting tax. But naturally you should check out your local tax laws.Now back to financing real estate development.As mentioned earlier, you are not just buying land when financing real estate development. You are asking the financial institution to approve the purchase of the land, as well as the construction of the whole project.To arrive at the position where you can make a Financing Real Estate Development Application, you will need a set of approved development plans, costings and a Real Estate Development Feasibility Study.Many people who want to get into the development business, make the mistake of finding and buying land ‘first” and borrowing mortgage financing, which is what they are used to doing.Only to find out later that they will have to discharge the mortgage and borrow the correct funds for financing real estate developments all of which costs money.This can be taught to you the right way!