Land and building purchases and the additional costs of improving them are financed with two key components of capital. The first is debt, typically borrowed from a bank and the second, since no bank will lend 100% of the project cost, is equity, rounded out by investors. This is called the capital stack.
Small Change provides detail on the capital stack for each offering it lists, including the amount the developer is seeking to crowdfund on our platform.
But how do banks determine how much they will lend on any given real estate project? Often they use two ratios know as loan to cost (LTC) and loan to value (LTV).
In this video Adam Gower of Gower Crowd will show you the difference between the two ratios and how banks use them to determine the amount they will lend to a project.
Go ahead. Watch!