There’s all kinds of money to be had out there these days: mortgages, loans, crowd funding, angel investing, growth funding, acquisition funding, merging, debt financing, equity financing… but what about 100% financing? What about getting something for nothing? We’re going strong with our Complaints Series in this newest article.
We get a lot of inquiries about people looking for funding for their projects (real estate, hotel, green energy, acquisition, you name it) – they’ll have the right graphs, say the right things, have good numbers to demonstrate growth once they’ve obtained their funding… but they have put no money into their project. Often they will add on the funder’s commission and the money needed to commission the proper reports on top of the amount requested in order to pay back the initial costs. The project is sound, the numbers look great, the ROI sounds good.
The first thing you learn in economics class is TNSTAAFL: There’s No Such Thing As A Free Lunch. Lenders, banks, and private funders just don’t give money away in promise of something in the future – a future that’s more and more unsure, judging by the way things are going nowadays. Following the worldwide financial crisis that we are just now starting to claw our way out of, any institution that is in the lending or funding business has become that much more strict in its lending policies. For example: regular banks that provide residential mortgages have dramatically increased their conditions for people to obtain a mortgage. It is that much harder now for someone to buy a house because of tougher lending policies.
Private funders are the same. The vast majority just don’t do 100% funding. To themselves, they wonder: why should I take all the risk for this person’s project when they have sacrificed nothing? Why should I put myself out there, put my money on the line, when it’s no skin off their back if the project fails?
Sometimes people come to funders and while they don’t have the money to invest in their project, they have invested their time and they plan to pay it all back after they get their financing. But funders need much more convincing today than they ever did before. They won’t risk themselves if the client won’t risk his- or herself first. It’s not that the funders don’t believe in the project. Oftentimes it’s actually quite the opposite – the project really does sound great and it could be a great opportunity, but the client has not invested their own resources into the mix. It’s like a buying a house – where’s the down payment?
The few lenders out there who will do 100% funding will often do so for an outrageous tradeoff: either through sky-high interest rates or they’ll take a huge stake in the project and eventually even toss out the project developer and take it all for themselves.
You want your investors to invest in your project, start by investing in it yourself. Some funders will require a minimum amount of funding. Some will accept collateral. They just need to see that you believe in your project as much as you want them to believe in it and that you’ve got skin in the game. It’s your goodwill gesture that may decide them ultimately to join forces with you.
In any case, always make sure you make an informed decision,
All the best,