Development capital is money used to develop real estate or business ventures, including building or rehabilitating properties and starting, maintaining, or expanding businesses. It can be obtained through loans, lines of credit, grants, and angel financing, with collateral and business plans often required.
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 rehab 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 needed 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, apartment building, or retail store. To raise this type of capital, an investor or homeowner typically first creates a plan to present to potential lenders. This plan typically cites bids and bids from licensed contractors and builders who estimate overall construction costs to develop the property. Lenders assess the value of the potential development to determine how much equity they will lend to the homeowner or real estate speculator. This loan is repaid through future rental income from the real estate or through the final sale of the property.
Business development capital refers to money used in the “development” of the business. This can be seed money to start the business, working capital to keep the business running, or expansion capital to help grow the business. The capital could be used to purchase new equipment, add additional business locations, or increase existing business lines.
Businesses can obtain development capital through various sources, such as bank loans, lines of credit, grants, and angel financing. A development capital loan is one in which commercial property and equipment is pledged as collateral for the loan. The Small Business Administration (SBA) is one of the largest lenders of development capital to businesses in the United States, offering a wide range of loan amounts. Development capital can also come in the form of a line of credit, which is treated as a revolving line similar to a business credit card. These lines of credit are generally priced at higher interest levels than business loans.
Government and community agencies often offer grants to nonprofit businesses for development purposes. To get a development capital grant, business owners typically have to submit a business plan and grant proposal, which can take much longer than getting a simple loan. Grants, however, do not have to be repaid.
Perhaps the most misunderstood and difficult to obtain development capital is angel financing. This type of development financing is generally reserved for high-concept businesses with a high probability of success in their field of industry. To obtain this type of development capital, the business owner typically needs to relinquish a portion of their ownership of the business.
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