Development capital is money used for real estate or business ventures. Real estate development capital is used to build or renovate properties, and business development capital is used for start-up, working, or expansion costs. Sources of capital include loans, lines of credit, grants, and angel funding. Grants do not have to be repaid, while angel funding requires giving up ownership.
Development capital refers to money used in the development of real estate or business ventures. In the case of real estate, development capital is money used to build a new property or renovate an existing building. In a business venture, development capital refers to money used to start, maintain, or grow a business.
Real estate development capital refers to the money required to develop a property, such as demolishing existing structures, clearing and grading land, and preparing the site for a vertical structure such as a house, condo, or retail store. To obtain this type of capital, an investor or property owner usually first creates a plan to present to potential lenders. This plan usually cites proposals and offers from licensed contractors and builders who estimate the overall construction costs to develop the property. Lenders assess the value of the potential development to determine how much capital they will lend to the landlord or real estate speculator. This loan is repaid either through the future rental income of the property or through the final sale of the property.
Business development capital refers to the money used in the “development” of the business. This can be start-up capital to get the business going, working capital to keep the business going, or expansion capital to help the business grow. The capital could be used to buy new equipment, add more corporate headquarters or grow existing lines of business.
Companies can obtain development capital through a variety of sources, such as bank loans, lines of credit, grants, and angel finance. A development capital loan is a loan in which business equipment and property is pledged as collateral for the loan. The Small Business Administration (SBA) is one of the largest lenders of business development capital in the United States, offering a wide range of loan amounts. Development capital can also come in the form of a line of credit, treated as a revolving line similar to a corporate credit card. These lines of credit are typically priced at higher interest levels than business loans.
Government and community agencies often offer grants to non-profit corporations for development purposes. To obtain a development capital grant, entrepreneurs usually need to submit a business plan and grant proposal, which can take significantly longer than obtaining a simple loan. Grants, however, do not have to be repaid.
Perhaps the most misunderstood and hardest to get development capital is angel funding. This type of development financing is usually reserved for high-concept companies with a strong likelihood of success in their given industry sector. To obtain this type of development capital, the entrepreneur usually has to relinquish a portion of his or her ownership of the business.
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