How to secure funding for a real estate project

Options for Financing Real Estate Projects

Here is an overview of the main options for securing capital for a real estate project:

Bank Loans

For most larger projects, bank loans are the cornerstone of financing. Banks offer specialized loans for developers, such as development construction loans or mortgage loans secured by real estate.

The advantage of bank financing is the ability to obtain large amounts at a relatively low interest rate (compared to other sources). However, the bank imposes strict requirements: you will need a high-quality business plan, a project budget, an appraisal of the future value of the property, and often a certain equity contribution (typically 10–30% of the project costs).

As a rule, the bank requires loan security – for example, a mortgage on the land and the building under construction, or a parent company guarantee. The loan approval process can be lengthy, and banks carefully scrutinize project risks (e.g., whether you have a building permit, pre-sold units, experience as a developer, etc.). For details on how the individual sales phases differ, see the article development loan: the difference between pre-sale, pre-contractual reservation, and sale.

Advantage: large volume of funds and long maturity (e.g., a 10–15 year loan) with a reasonable interest rate.

Disadvantage: demanding administration, strict drawdown conditions (e.g., proving a certain percentage of apartment pre-sales before funds are released), and less flexibility – once you commit to a contract, you must meet the agreed conditions, otherwise you risk the loan being called due.

Private Investors and Partners

Another path is involving private investors or strategic partners. These can be individuals with free capital, investment companies, or even other development firms that invest in your project in exchange for a share of the profits or co-ownership.

Such cooperation is often called a joint venture – both you and the investor inject capital into the project and share the risks as well as future returns. A private investor can provide funding in the form of equity or a mezzanine loan (a subordinated loan with a higher interest rate that complements bank financing).

The advantage is greater flexibility – you negotiate the terms individually, the investor may accept higher risk than a bank, and often brings experience or contacts in addition to money. The disadvantage, of course, is the need to share profits and, to some extent, control over the project.

The key is to have everything covered contractually – for example, through a shareholders' agreement that precisely defines who contributes what to the project, how profits are divided, how key decisions are made, and how a potential exit (the investor's withdrawal from the project) is handled. Negotiations with private investors are usually conducted discreetly, without a public offering – often through personal or business contacts. Securing such a partner can fundamentally increase the project's credibility for other financing entities (e.g., banks) as well, as they see that multiple parties are investing in the project.

Investment Funds and Funds of Qualified Investors

For larger or specialized projects, investment funds can be the solution, especially funds of qualified investors (FQIs) focused on real estate. These funds pool resources from institutional and wealthier private investors and invest them in various projects. These can be real estate funds managed by investment companies looking for profitable development schemes.

Funding from a fund can take various forms – for example, the fund buys a stake in your project company (thus entering the project's equity), or provides mezzanine financing in the form of a subordinated loan or a pre-paid buyout of a part of the project. The advantage is that funds usually have a large volume of capital at their disposal and can finance projects that a regular bank would not have the capacity for or would evaluate as too risky.

They also often offer deferred returns – for example, the fund collects its share of the profit only upon the sale of the project, so you do not have to pay high ongoing interest during construction. The disadvantage can be more complex and lengthy negotiations and thorough due diligence by the fund. You might be interested in the legal frameworks for the failure of development projects in the event of insolvency. The fund will also take a significant share of the profits for its capital and may want to have influence over key decisions.

To cooperate with a fund, it is necessary to prepare a detailed project presentation and financial model, and to expect that the fund will require professionally prepared contractual documentation (a master investment agreement, shareholders' agreement, etc.). A number of funds invest in residential and commercial real estate on the Czech market – capturing their attention requires a high-quality project and often high-level personal negotiations.

Crowdfunding (Group Financing)

An increasingly popular option is crowdfunding, i.e., collective financing of a project by the general public through an online platform. In the real estate sector, platforms allowing smaller investors to invest in development projects are gaining ground in the Czech Republic – they typically invest units to tens of thousands of CZK in exchange for a return.

Crowdfunding can take two main forms:

1. Investment crowdfunding – investors acquire a stake in the project, often by purchasing bonds or fund shares issued specifically for the project. De facto, they lend money to the developer and become creditors with a claim to interest or a share of the profits.

2. Loan-based (debt) crowdfunding – a crowd of investors provides a project loan, which the developer repays. The platform typically structures this loan and handles the administration.

The advantage of crowdfunding is speed and the marketing effect. If you have an attractive project, you can reach hundreds or thousands of small investors through the platform and raise money within a few weeks or months. You do not have to meet such strict criteria as with a bank – small investors often invest based on potential returns and basic project information. At the same time, this increases the publicity of the project (the people who invest will spread the word).

The disadvantages lie in platform fees and also in the limited volume – under Czech legislation, the maximum amount that can be raised this way is approximately EUR 5 million (~CZK 120 million) per project over 12 months. Crowdfunding has been regulated since 2022 (Act No. 96/2022 Coll., implementing EU Regulation 2020/1503), and platforms must be licensed and comply with rules under the supervision of the ČNB.

For the developer, this means they must cooperate with a licensed platform and, for example, prepare a key investment information document about the project. It is therefore necessary to expect legal requirements, even though this is alternative financing.

Crowdfunding is more suitable for medium-sized projects or as a supplement to a bank loan. The interest rate for investors is usually higher than a bank rate (to attract investors, e.g., 6–10% per annum), which is the price for faster access to money and less administration compared to a bank.

Equity (Own Capital)

Every financing entity will want to see that the developer themselves injects equity into the project. Financing a project entirely without own resources is practically impossible and also risky. Equity can come from the developer's savings, reinvested profits from past projects, or, for example, from the sale of another property. For smaller investors, equity can be represented, for example, by a guarantee using their own property or land.

The advantage of equity is that it increases the project's credibility – you show that you believe in the success enough to risk your own money.

In addition, no interest or repayments are tied to equity, so it reduces the financial burden on the project. A higher share of own resources often leads to better conditions with banks (lower interest rates, willingness to finance the rest).

The disadvantage is obvious: not everyone has sufficient funds available. By putting a large part of your assets into a single project, you take on concentrated risk – if the project does not succeed, it will directly threaten your finances. Therefore, many developers combine equity with other sources to spread the risk.

Generally, the rule is that the riskier or less prepared the project, the higher the percentage of own resources the financing entity will require. For fully prepared projects with permits and pre-sales, it is sometimes possible to negotiate financing with a very low equity contribution, but the standard is the aforementioned 20–30%.

Subsidies and Public Support

For certain types of real estate projects, subsidies or other forms of public support can be utilized. These are mainly projects in the public interest or with elements of innovation and sustainability.

Examples include:

Subsidies for energy-efficient buildings - e.g., the Nová zelená úsporám program, which provides contributions for ecological and energy-saving technologies in residential construction (insulation, renewable energy sources, etc.).

Support for the construction of affordable or social housing - the state or municipalities occasionally offer programs to support affordable apartments, such as subsidized loans from the State Housing Development Fund or subsidies for social housing.

Brownfield revitalization – if you, as an investor, revive a neglected site or industrial brownfield, you can obtain a subsidy from land regeneration programs (often co-financed by EU funds).

Other regional or EU programs – depending on current calls, funds can be drawn for innovative architecture, green roofs, smart cities, etc.

The advantage of subsidies is that they are "cheap money" – you do not have to repay them like a loan (provided you meet the conditions). Subsidies can typically cover 10–40% of project costs, which significantly improves the project's economics and can make it easier to obtain the remaining financing (you show the bank or investor that part of the costs is covered).

However, the disadvantages and pitfalls are substantial: obtaining a subsidy is administratively demanding, often lengthy (the approval process takes months), and uncertain. It is necessary to prepare a detailed application, meet many criteria, and carefully comply with the conditions after receiving the subsidy (e.g., project sustainability for a certain period, achieving certain energy performance parameters, etc.).

Failure to comply with the conditions can lead to the obligation to return the subsidy, which could financially ruin the project. It is also necessary to expect that subsidies are usually paid out retrospectively after completion or during the project, so you must have other sources available in the meantime, and the subsidy then serves to reduce debt or refinance.

For developers, it therefore makes sense to monitor subsidy opportunities and, if necessary, consult with subsidy advisory experts (for example, ARROWS has its own Czech legal team dedicated to subsidy support). A correctly utilized subsidy can make a project significantly more profitable, but it must not be relied upon as the sole source of finance.

Bonds

In recent years, financing through bonds has become a popular tool, especially among mid-sized developers. A developer (through their project company) can issue corporate bonds purchased by the general public or private investors.

By purchasing a bond, the investor lends money to the issuer, and the issuer commits to paying interest and returning the nominal value of the bond on a specified date. For the developer, this is a way to raise money without a bank – the advantage can be fewer restrictive conditions than with a bank loan and sometimes faster access to funds. Investors are often promised a relatively attractive interest rate (e.g., 5–8% per annum) as compensation for the risk taken.

However, bond issuance is subject to legal rules. Every bond must have terms of issue that define the rights and obligations of the issuer and bondholders (interest rate, maturity, security, etc.). If you want to offer bonds publicly to a larger number of people, under Czech legislation, limits are set: a public offering without a prospectus (approved by the ČNB) is only possible up to an issue volume of EUR 1 million (approx. CZK 25 million) or when targeting a maximum of 150 non-professional investors.

On a larger scale, you must have a prospectus prepared and approved by the Czech National Bank (ČNB), which is an expensive and lengthy process, suitable rather for large issues. Many developers therefore choose the path of a private offering (targeting a limited circle of investors, often acquaintances or qualified investors, and avoiding public advertising) or split the issue into smaller tranches below the limit. However, this must be done carefully and in accordance with the law – the ČNB actively monitors the bond market and imposes fines for bypassing the rules.

Another aspect is bond security: most development bonds are unsecured (investors essentially trust that the developer will be able to pay). To boost trust, bonds can be secured – e.g., by a mortgage on real estate, a guarantee by another group company, or a bank guarantee. Secured bonds have a better chance of attracting investors and may have a slightly lower interest rate, but securing them costs extra time and money.

The advantage of bonds is therefore the possibility to obtain financing even from smaller investors and diversify sources. The disadvantages are the costs of the issue (legal advice, administration associated with the registry of owners, or a prospectus) and the obligation to pay interest regardless of the project's economics. If the project is delayed or fails, the bonds must still be repaid – which can lead to the company's bankruptcy if there are no funds to pay. Therefore, this form of debt should not be underestimated and ideally should not exceed a reasonable level of indebtedness.

Alternative and Supplementary Forms of Financing

In addition to the main sources mentioned above, there are also various supplementary forms of financing that can help put together the project's financial plan:

Mezzanine loans - as mentioned, these are subordinated loans from specialized investors or funds. They carry a higher interest rate than a bank loan but can cover a portion of the investment that the bank will not lend. They are usually repayable only after the bank is repaid and can be convertible into a share in the project if not repaid on time.

Pre-sales and deposits from future buyers - in residential projects, developers often sell apartments or houses before construction is completed. Buyers pay a reservation fee or a deposit (e.g., 10–20% of the price) in advance. These funds can be used to finance construction. Banks expect this and sometimes require a certain percentage of pre-sold units before releasing the next tranche of the loan. Deposits reduce the need for other financing, but they must be properly handled (usually they go into escrow, and the developer receives them only when conditions are met – this protects the buyers).

Supplier credit - sometimes it is possible to agree with the construction company or suppliers that part of the payments for work and materials will take place only after the project is completed or after the units are sold. De facto, the supplier finances the construction from their own resources before getting fully paid. This deferred payment scheme eases cash flow during construction. Of course, not every supplier is willing to agree to this and often charges extra for it, but with reliable partners, it can be a welcome help.

Sale of part of the project or partnership with a larger developer - if you have a project in the land and permit phase but lack financing for the construction itself, you can consider selling the project to a larger investor or entering into a partnership.

For example, you sell a 50% stake in the project to a strong developer who will secure financing and execution, while you share in the profits. Although you lose some control and a portion of future profits, you ensure that the project is built at all and make a profit with less risk.

Each project is unique and is often financed by a combination of the listed sources. For example, a typical model might be: 20% equity + 60% bank loan + 20% mezzanine or pre-sales. It is important to continuously monitor financing costs (interest, fees, profit shares) and their impact on the resulting profitability of the project. It is also crucial to maintain a certain buffer for unexpected expenses or the failure of one of the sources – financing should never stand on a single pillar without a backup plan.

Legal Aspects of Financing Real Estate Projects

Financing a development project is not just about numbers and percentages, but to a large extent also about law and administration. Every form of financing carries a set of legal requirements, contracts, and permits that must be secured. Underestimating legal aspects can ruin even the best financial plan.

Here are the key legal areas to focus on:

Contractual Documentation and Legal Relations

Even during the preparation of financing, it is necessary to think about what contracts you will have to conclude and how you will set up the relations between all parties:

Loan agreements with the bank

These are robust contracts, often dozens of pages long, where the bank details the conditions for drawing the loan, interest, repayments, security, developer obligations (e.g., regular reports on construction progress, construction insurance, prohibition of project changes without bank consent, etc.), and penalties for breach.

Before signing, it is crucial to read the contract thoroughly (ideally with the help of a lawyer) and negotiate modifications to unclear or overly strict conditions. For example, covenants (financial indicators that you must maintain during the loan term) should be realistic and achievable, otherwise you risk the bank calling the loan early.

Agreements with investors/partners

If you finance a project in partnership, it is necessary to contractually regulate how the cooperation works. Typically, a partnership agreement of a new company (SPV) or a shareholders' agreement in an existing company is concluded, describing the distribution of shares, contributions, profits, and competencies. Furthermore, an investor agreement or a framework agreement can be useful, where the partner commits to providing certain capital under given conditions. For a mezzanine loan, you conclude a loan agreement or a credit agreement with a subordinated creditor.

It is always necessary to think about what happens when one party does not deliver funds on time, when a dispute arises, or when it is necessary to terminate or sell the project – contracts should address such situations as well (e.g., the investor's right to withdraw from the project under certain conditions, the developer's obligation to find alternative financing, etc.).

Terms of issue of bonds

When financing through bonds, it is mandatory to prepare terms of issue – a document that defines all parameters of the bonds (issue price, nominal value, interest rate, maturity date, method of interest payment, potential security, purpose of the issue, etc.). The terms of issue are de facto a contract between the issuer and each bondholder-investor. They should be drafted precisely and in accordance with the Act on Bonds.

If it is a public offering of bonds, it is also necessary to prepare a prospectus and have it approved by the ČNB (unless it is the limited sub-limit offering up to EUR 1 million or up to 150 investors mentioned earlier). For a private offering of bonds, a prospectus is not required, but it is still necessary to comply with legal limits and not distribute the offer publicly.

Agreements with the crowdfunding platform and investors

In the case of crowdfunding, you will conclude an agreement with the platform that mediates the financing for a fee. The platform has its own business terms and contractual framework to which you must submit – regulating, for example, how and when you receive the raised money, what information you must provide to investors, what happens in case of project delay, etc.

Small investors then usually conclude an agreement with the platform or directly with you (the platform acts as an intermediary). It is necessary to ensure that the information presented on the platform is true and not misleading – the law now requires the aforementioned key investment information document, which clearly summarizes the risks and conditions of the investment for investors. Here too, if you promise something that you then do not fulfill (e.g., an overstated expected yield), it can have legal consequences.

Purchase agreements and future purchase agreements with future buyers

If you finance part of the project from pre-sales of apartments or commercial units, you will conclude agreements on future purchase agreements with individual interested parties.

These agreements will determine the conditions of the future sale (price, completion date, unit parameters) as well as the amount and maturity of deposits. From a legal perspective, it is necessary to include provisions on what happens if the project is delayed, if the buyer withdraws, or if construction does not take place at all – to protect buyers, the Real Estate Brokerage Act sets certain obligations (such as the aforementioned escrow of money to keep it safe until the property is transferred).

These pre-sale agreements can significantly affect financing, as the bank will want to see them and assess their quality (whether the deposits are high enough and the contracts binding so that buyers cannot easily back out).

Pledge agreements and other security documents

If you provide security to creditors, you must regulate this contractually. Typically, a pledge agreement for real estate is drawn up in favor of the bank (which is then entered into the land registry so that the bank has a mortgage). It can also be a pledge of receivables (e.g., future receivables from the sale of apartments in favor of the bank), a pledge of a business share in the company, guarantee declarations (where, for example, the developer's parent company guarantees the loan), or promissory notes.

All these documents must meet legal requirements, otherwise the security could be invalid. Therefore, a notarial deed is required for pledges on real estate, correct formulations for guarantees, etc. Security documents are often prepared by the bank's lawyer, but the developer should have them checked by their own lawyer – for example, to ensure that the guarantee does not affect assets unrelated to the project, etc.

For larger projects with multiple creditors, an Intercreditor Agreement is also concluded, which determines how the proceeds of the security will be distributed if the worst happens (e.g., the bank has priority over the mezzanine, mezzanine over unsecured bonds, etc.). This agreement also needs to be legally covered.

In short, any flow of money into the project should be backed by a contract or document. This applies even if you finance the project yourself – you should be clear on whether you are putting money into the project company in the form of a (shareholder) loan or by increasing the registered capital, as this has different implications in case of failure (a loan is a debt that is repaid with priority over the owner; a capital contribution is not repaid until something is left after liquidation).

Good legal documentation protects your investments, sets the rules of the game, and can prevent many misunderstandings and disputes during execution.

Permits, Approvals, and Regulatory Requirements

In addition to contracts, the second crucial area is securing all necessary permits and meeting legal requirements associated with the project:

Building permits and related consents

No bank or reasonable investor will put significant money into a project that does not have the necessary administration secured for execution. For a development project, it is crucial to have a final zoning decision (or regulatory plan) and especially a final building permit. The building permit proves that the project can be legally built.

You are in an even better position if you already have contracts with construction contractors or are at least in the tender phase – the financing entity then knows that execution can begin immediately. Permits also include, for example, EIA (Environmental Impact Assessment) for larger schemes, opinions of affected bodies (firefighters, hygiene, transport authority, etc.), and potential consents of owners of neighboring plots (if, for example, you need to run utilities through someone else's land).

All these permits and consents should be resolved before drawing most of the funds – it is very risky to take a loan for a project and only then find out if you will get a permit. In addition, many contracts (especially with the bank) have conditions precedent that money will be provided only after presenting the building permit, and if obtaining it is delayed, you may have to pay fees or the execution time is shortened.

Capital market requirements

If you obtain financing through a public offering (bonds, shares, crowdfunding), you must respect regulatory restrictions. As mentioned, for bonds exceeding a certain threshold, a prospectus approved by the ČNB is required.

For crowdfunding, you can use licensed platforms that take care of regulatory matters, but you still must provide true information and respect the limit of EUR 5 million per project over 12 months. If you want to target the public directly (outside a platform) with an offer to invest in a project, always consult with lawyers – even an internet advertisement can be considered a public offering of securities or an investment instrument and subject to ČNB supervision. You do not want to end up in a situation where, in the middle of a project, the regulator forbids you from continuing to raise money or imposes a fine.

Land Registry and legal status of plots

Before drawing funds (especially from banks), the legal status of the real estate on which the project stands is verified. You must have resolved the ownership of the land – ideally being the 100% owner, or having a long-term building right or lease agreement that allows construction. The land and future building will serve as security, so they must not be burdened with unremovable easements, ownership disputes, etc.

It is also necessary to have access roads in order (easements of passage and carriage if the plot is not directly next to a public road). Any defects in the legal status of the real estate can delay or thwart financing – banks perform legal due diligence, and if they encounter a problem, they will want it rectified before drawing money (e.g., exchange of part of the land, cancellation of an easement, etc.).

Agreements with public entities

It often happens that a developer must conclude an agreement with a municipality or region – e.g., a cooperation agreement or an agreement on an investment contribution to infrastructure. A municipality may condition the issuance of a building permit on the investor contributing to the construction of a road, a kindergarten, etc. Such agreements must be negotiated and signed in time, as they can mean an additional financial commitment that must be included in the budget and financing (the bank will ask about this).

From a legal perspective, make sure such an agreement is valid – public entities have strict rules on what they are allowed to sign. It is recommended to have drafts checked by a lawyer to ensure the conditions are fair and enforceable.

Insurance and OHS

Even though it is not directly a legal permit, most financing entities require the project to be properly insured. This means having construction-assembly insurance, liability insurance, etc. These contracts with the insurance company should be prepared before starting construction, and often the bank wants to be listed as the beneficiary of the policy (so that in the event of an insurance claim, the money goes primarily to repay the loan). Compliance with occupational health and safety (OHS) on site is then a legal obligation – its violation could lead to a halt in work and thus threaten financing, so do not underestimate this either.

Tax aspects

Financing also has tax implications – interest on loans are tax-deductible expenses (if they meet the requirements), whereas, for example, when using equity, there is no interest to deduct. In more complex structures (funds, foreign investors), it is necessary to resolve with tax advisors whether, for example, it will be necessary to withhold tax from interest, whether it is optimal to structure the investment as a loan or a contribution from a VAT perspective, etc. Although these aspects are not "permits", they should be legally and tax-wise covered so that financing is effective and in accordance with the law.

In summary, on the legal side, it is necessary to have a clean slate – all permits for the project, resolved ownership and relations to the land, and all financial flows and commitments covered by contracts. Legal preparation before drawing money may seem lengthy, but it avoids later crises. A wise investor or developer will therefore involve lawyers specialized in real estate right from the start to detect and resolve potential problems in time.

Prague-based ARROWS real estate team

Risks Associated with Financing and How to Prevent Them

Every project financing carries certain risks. The task of a good developer/investor is to identify these risks and actively prevent or at least mitigate them. Here are the most common risks associated with financing real estate projects and tips on how to secure against them:

Financial risk (over-indebtedness and liquidity)

If a project takes on too much debt or an unsuitable financial structure, it can run into repayment problems. A typical financial risk is that you do not meet the loan conditions (e.g., you do not sell apartments on time and will not have money for interest payments) or that interest rates increase and the loan becomes dramatically more expensive. It can also happen that money runs out before construction is completed – for example, due to unexpected extra costs.

How to prevent: Be conservative in planning – count on reserves in the budget (e.g., +10% for unexpected costs) and a buffer in time. Do not borrow the entire amount "to the limit", try to have a backup source (extra own money, the possibility to invite an investor additionally, etc.). Consider hedging the interest rate – if it is a period of low rates, it may make sense to fix interest rates for the duration of construction to ensure stable costs.

Thoroughly plan the project's cash flow – when money from sales will come in and when you have to pay for the loan or suppliers. If you find that there will be a shortage of cash in a certain period, address it in advance (e.g., by short-term bridging, deferring payments by agreement with the bank, etc.).

And above all – do not hide problems from financing partners. When you see a risk of a repayment problem, communicate it in time and look for a solution together. Most creditors will appreciate a proactive approach and will be more accommodating than if you present them with a fait accompli that "there is no money to pay".

Market risk

Real estate is subject to market fluctuations. An economic recession, a drop in demand, an increase in offers of competing projects, or a change in customer preferences can occur. This can mean that planned sales will slow down or you will have to reduce prices or rents. Consequently, the income from which you wanted to repay the financing will drop.

How to prevent: A thorough market analysis before the project is essential – to find out what the demand is, what prices are realistically achievable, who the competition is. Never build purely "on speculation" that maybe it will sell.

The ideal is to have preliminary reservations or expressed interest from buyers/tenants even before the investment decision is made. Diversify within the project as well – for example, do not build only luxury apartments, try a mix of sizes so that the circle of interested parties is wider.

Have a plan B ready: What if you do not sell all the apartments? – can you rent them out and wait for a better time to sell? What if not enough tenants are contracted for an office building? – do you have capital for a longer duration, or the possibility to sell the building to an institutional investor as a whole?

Hedging market risk is difficult, but cautious financing helps (rather borrow less and have a lower debt that you can handle even with weaker sales) and insurance – there are, for example, insurances for cases where a tenant does not pay, etc., which will not cover a market fluctuation but will mitigate the impacts.

Legal risk

Underestimating legal details can cause delays or cancellation of financing, or additional costs.

Examples of legal risks: it is found that the building permit became final late due to an appeal and you were already supposed to draw the loan – drawing stops, but costs run. Or someone challenges the ownership of the land in court. Or you have an ambiguously defined profit share in the contract with the investor and after completion you argue about who is entitled to what.

In extreme cases, you can get into lawsuits that complicate financing (the court orders an interim measure and forbids disposing of the property, etc.).

How to prevent: The best prevention of legal risks is quality legal service from the very beginning. Have all contracts checked by a professional who knows the real estate and finance field. Legal due diligence of land and the project will reveal potential hidden defects (easements, restrictions in the zoning plan, risk of archaeological finds, etc.). In financing agreements, avoid unclear formulations – rather have everything explicitly given.

Ensure that the building permit becomes final before you commit to fixed dates for drawing money. If you enter into a contractual relationship with a new investor or fund, verify the counterparty as well (its reputation, background, legal history). Prevention of legal risk is simply about consistency and caution – better to spend a few more hours on contracts now than to resolve a dispute in court for years.

Risk of failure to meet financing conditions

Every financing entity sets certain conditions – whether one-off (so-called conditions precedent for providing money, e.g., presenting documents) or ongoing (e.g., completing a certain stage of construction by a given date, achieving pre-sales of X%, keeping the debt/price ratio below a certain value, etc.).

If you do not meet these conditions, it can lead to sanctions: the bank will not pay you another part of the loan, the investor can withdraw from the contract, the crowdfunding platform can demand the return of raised funds to investors, etc. This risk is real – a delay in construction due to weather is enough and you can formally fail to meet a milestone.

How to prevent: Already when negotiating contracts, try to negotiate conditions so that they are achievable with a buffer. Do not sign unrealistically strict deadlines or targets in the hope "it will be fine" – insist that the schedule counts on possible delays.

Have an action plan ready in case non-fulfillment is approaching: e.g., if you know you will not manage to invest 50% of the loan by the date because the contractor is delayed, inform the bank and try to negotiate a postponement or change of condition before its breach occurs.

With investors/funds, transparent communication helps – they usually appreciate it when you inform them about problems openly and propose a solution in time (e.g., that you will inject additional capital yourself so that the project continues). If you were silent and simply did not meet the condition, they would lose trust and might react harshly, whereas by agreement a compromise can be found.

Partner or co-financier risk

If you rely on one key investor or, for example, on a general contractor to wait with payments (supplier credit), you expose yourself to dependence on a third party. A situation can arise where the partner does not deliver the promised money – e.g., the investor is hit by their own financial difficulties and cancels the investment commitment. Or relations deteriorate and the partner decides to back out of the project. With a contractor, it can happen that they go bankrupt in the middle of construction (then you pay nothing, but you have to quickly find a replacement and the project is delayed).

How to prevent: First, carefully choose who you go into business with. Check the financial health of the investor/contractor, references, history. Second, always have a backup solution plan – what will you do if the partner withdraws? Do you have someone in reserve to replace them? Can you put contractual penalties or guarantees in contracts (e.g., the investor deposits part of the money in escrow in advance, which is forfeited if they withdraw without reason).

With a contractor, you can require a bank guarantee for the proper completion of the work – if they go bankrupt, the bank will pay a certain sum for which you hire a replacement contractor. Do not involve a critical person/company in the project if you have no control over what they do – rather split the project among multiple entities than have one hold all the cards (e.g., rather 2-3 smaller investors than one, rather several contractors for parts of the construction than one for everything, if it is an extremely large commitment).

External risks (legislation, macroeconomic changes)

Some things you cannot influence – e.g., the state changes legislation (such as increasing VAT on real estate, which makes apartments more expensive and threatens demand, or restricts the availability of mortgages for end buyers), or the ČNB tightens rules for banks (which then lend less).

The macroeconomic environment can be changed by inflation, which makes materials more expensive, or the geopolitical situation. How to prevent: You cannot directly prevent these risks, but you can monitor developments and have flexibility. Follow legislative changes – a good lawyer or advisor will warn you about them in time (e.g., is an amendment to the Building Act being prepared? What does it mean for your project?).

If you feel that interest rates will rise, secure financing before it happens, or fix the rates. When you know that material prices are skyrocketing, try to negotiate a fixed price for turnkey construction with contractors (transfer the risk of price increases to them – they will project it, but you will have price certainty).

Insurance and hedging instruments are also good tools – e.g., credit insurance, insurance against price increases (this is less common, but derivative instruments exist to hedge some commodities or interest rates). Again, this is the domain of financial specialists, but as a developer, you should know that such options exist and consult with experts if you are exposed to a large external risk.

The key to risk management is being proactive. Identify what could go wrong, and for each major risk, ask yourself: "What will we do if this situation occurs?". Such a risk management plan may seem unnecessary at the beginning (when everything looks rosy), but in a critical moment, you will appreciate having prepared options. Financing partners will also appreciate it – they will see that you have thought through the project even for worse scenarios, which increases their trust and willingness to provide money.

Examples of Good and Bad Practice in Securing Finance

Theory is important, but nothing explains successes and mistakes better than concrete case studies. Let's look at two model situations – one where financing was handled exemplarily, and another containing several warning lessons.

Good Practice

Example: Company ABC planned the construction of an apartment building with a budget of CZK 80 million. Its team knew that to obtain such a sum, it would be necessary to combine sources. First, the investors (owners of ABC) injected equity of CZK 20 million, with which they acquired the land and arranged the project documentation and building permit. With the permit already resolved and the project partially financed, they approached the bank.

The bank promised a development loan of CZK 50 million, but on the condition that at least 30% of the apartment units of the future building were pre-sold and that the loan would be secured by a mortgage on the land and the building under construction. ABC therefore launched a marketing campaign and soon managed to obtain reservation agreements for a third of the apartments, with reservation fees from buyers going into escrow.

Meanwhile, company ABC negotiated with another investor – a private investor, Mr. Novák, who was willing to invest CZK 10 million in exchange for a 20% stake in the project and a share of the profit from the sale of apartments. A shareholders' agreement was concluded, defining that Mr. Novák would preferentially receive a profit in the amount of his investment + an 8% return, and everything above this limit would be divided with ABC in a 20/80 ratio.

With these secured sources, ABC then concluded a loan agreement with the bank and could start drawing funds for construction. Thanks to sufficient financing, the project was completed on time and in the required quality. Before the final inspection, the remaining apartments were also sold (thanks to which ABC met the bank's conditions early and could draw the final part of the loan). After completion and sale of all apartments, the company repaid the bank loan and the investor's share.

Result: everyone involved was satisfied – the bank got its money back with interest, the investor achieved a profit slightly higher than 8% p.a., and the developer ABC also made a decent profit on its capital. This example shows that a combination of multiple sources (equity + bank + investor + pre-sales) along with careful preparation (permits in advance, contractual coverage of everything) leads to successful project financing.

It was also important that ABC thought about risks – it had a reserve in the budget for extra work, fixed the interest rate with the bank for 5 years ahead, and had it covered in the contract with the investor that if the profit was not enough to pay the 8% return, the investor would become a co-owner of one unsold apartment as alternative performance (which ultimately was not necessary to use, but gave the investor certainty). Thanks to these steps, the project went without crises and financial problems.

Bad Practice

Example: Developer XY decided to quickly build a smaller office complex for approx. CZK 50 million, but did not want to lose time negotiating with a bank or looking for a partner. He bet on a seemingly simple solution – he would issue his own bonds and pay for everything from them. He imagined that he would offer investors a 7% annual interest rate and the bonds would surely sell like hotcakes.

Developer XY, however, underestimated preparation: he did not yet have a building permit (only a submitted application) and yet started promoting the possibility of investing in his company's bonds via the internet and social networks. Within two months, he actually managed to obtain about CZK 30 million from about a hundred small investors (each subscribed bonds for a few hundred thousand). This gave him self-confidence, and he started financing construction work with these funds.

But – the building permit was still not there, the process was delayed due to an appeal by one neighbor. Time ran, money from the bonds was decreasing, and it was no longer possible to get other investors (the project started to have a reputation of being "stuck"). In addition, the ČNB registered that a public offering of bonds had taken place, which may have exceeded legal limits – developer XY publicly addressed more than 150 people and raised over EUR 1 million without having a prospectus.

The central bank launched an investigation and could impose a fine and ban further offering of bonds. Developer XY found himself in a trap: he did not have enough money to continue construction, did not find new investors due to a bad reputation, and could not pay the interest he promised to existing investors after a year. Construction stopped halfway – the half-built complex started to deteriorate, neighboring disputes continued to block the permit. Ultimately, the developer had to declare insolvency. Small bond investors were left with a minimal chance of seeing their money (in bankruptcy, they did not get anything as unsecured creditors).

This unfortunate story illustrates several mistakes:

1. Overestimating bonds – issuing bonds seems easy, but if you do not have a realistically secured project, it is a big gamble.

2. Violation of legislation – a public offering without a prospectus does not pay off, regulatory problems can completely derail a project.

3. Lack of source diversification – XY relied on only one source of money and had no backup plan when this source dried up.

4. Underestimating permits – starting financing and construction without a building permit is extremely risky; as soon as you hit a problem, financing stalls.

The lesson: always prepare the project in all aspects and do not build financing on unrealistic assumptions.

How ARROWS Law Firm Can Help

The process of obtaining finance for a real estate project is, as we have shown, a complex matter involving finance, business negotiations, and law. ARROWS Law Firm is among the leading experts in real estate law and project financing in the Czech Republic.

For developers and investors, it offers comprehensive services covering the entire life cycle of a project – from initial negotiations to completion and sale. Here are several ways ARROWS can help you achieve successful financing and execution of your project:

Legal security of the project

Experienced lawyers from the ARROWS team will verify your project in detail from a legal perspective. They will help you ensure that you have all contracts and documents needed for financing in order. They will prepare or review loan agreements with the bank, investment agreements with partners, terms of issue of bonds, or agreements with a crowdfunding platform so that they protect your interests and are balanced.

ARROWS has experts specialized directly in development projects who know the usual market conditions and legal pitfalls – they can therefore negotiate better conditions and eliminate risky formulations.

In addition, they will secure all security instruments – preparing pledge agreements, guarantee declarations, agreements between creditors, etc., so that the entire financing stands on solid legal foundations. Thanks to professionally handled contractual documentation, you will avoid future disputes and ambiguities, which you and your financing partners will appreciate.

Negotiations with authorities and permits

ARROWS lawyers will also help you with the administrative side of the project. Do you need to obtain a building permit or are you dealing with a neighbor's appeal?

ARROWS has rich experience with zoning and building proceedings, knows how to negotiate with authorities, and defends your interests. They will ensure that all necessary permits and consents are processed in accordance with the law and as quickly as possible. If the municipality imposes conditions (e.g., an infrastructure investment agreement), ARROWS will negotiate a fair wording of such an agreement. If you have a project that requires special permits (e.g., exemptions, EIA assessment), you can rely on their expertise here too. In short, they will watch over communication with authorities for you so that you can focus on the business side of the project.

A fast and valid permit is often decisive for whether you obtain financing – ARROWS will help minimize bureaucratic delays.

Negotiations with landowners and other parties

Before a project starts, it is often necessary to buy out land or agree with current owners on buyouts or easements. ARROWS can provide complete legal service during land acquisition – verifying the legal status (due diligence), preparing purchase agreements or agreements on establishing in rem rights, and ensuring a smooth transfer in the land registry.

If you run into a complicated owner or, for example, a tenant who does not want to leave the property, ARROWS lawyers will take over the negotiations, propose solutions (e.g., land exchange, alternative performance, expropriation in extreme cases), and bring the agreement to a close.

Thanks to knowledge of the real estate market, ARROWS can estimate what is acceptable for the counterparty and find a mutually beneficial compromise. In addition to landowners, ARROWS commonly negotiates with other stakeholders – for example, with construction companies (when concluding a contract for work, which also affects financing), with future buyers/tenants (when setting up contracts that also suit the bank), or with public investors (when the project is co-financed by a municipality or region).

Securing financing and financial advice

ARROWS is not just a pure law firm – under one roof, it also offers tax and financial advice, subsidy advice, and insurance services. This means that when looking for financing, lawyers can cooperate with financial advisors and find the optimal solution for you. They will help prepare documents for banks and investors so that they are convincing and credible – from a business plan through a financial model to securing the necessary expert opinions or audits.

Thanks to a wide network of contacts, ARROWS can connect the client with suitable investors or financial institutions. For example, if a project looks better for a certain investment fund, they can mediate the presentation of the project to the right people. Likewise, they will advise on what subsidy titles are currently available and help with the subsidy application, thereby increasing the chance of obtaining "cheaper money".

The advantage is that ARROWS can assess the legal, economic, and tax implications of financing and propose a structure that makes comprehensive sense. If you do not know whether it is better for you to issue bonds, take a bank loan, or invite an investor – experts from ARROWS will go through this strategy with you and help you decide.

If interested, they can also conduct negotiations with the bank or investor on your behalf, or arrange refinancing of an disadvantageous loan.

Mediation of sale or exit strategy

The goal of every development project is to successfully complete and monetize it – either sell it off to end customers or sell the entire project (building) to an investor, such as a real estate fund. ARROWS assists in this final phase as well.

They will prepare property transfer agreements for individual apartments or houses, ensure escrow of purchase prices, and a smooth transfer of ownership to new owners. If you decide to sell the entire project to one investor (so-called exit from the project), ARROWS will prepare the sale structure (e.g., sale of a business share in the company owning the project vs. direct sale of real estate) so that it is legally safe and tax-efficient. Thanks to their experience, the sale will not get stuck on formal errors or missed deadlines.

Within the ARROWS group, they also cooperate with real estate experts and appraisers, so they can arrange property valuation, advise on sales marketing, or recommend a reliable real estate agency if needed. In short, ARROWS can act as a coordinator of the entire process up to the final monetization of the project.

Building trust and representing your interests

In addition to specific activities, one of the greatest benefits of lawyers is the fact that they bring credibility and peace of mind to the project. When financing partners see that you have a reputable law firm behind you supervising the legal side of things, they perceive it very positively.

ARROWS is known for placing emphasis on speed and professionalism – they can solve things promptly, which is crucial in the dynamics of a development project. In addition, they can protect your interests in case of disputes or unexpected situations – whether it is negotiating a deferral of payments with the bank or legal defense against unjustified claims, you have support in them.

The ARROWS firm was awarded Law Firm of the Year 2024, which proves its quality and wide professional background. With more than 60 advisors (lawyers, tax specialists, subsidy experts), it is able to cover truly all the needs of real estate entrepreneurs under one roof. Clients thus save time and obtain comprehensive service – they do not have to solve each partial matter separately with a different advisor.

In short, ARROWS Law Firm will help you minimize risks and maximize the chance of success of your project. From initial negotiations on financing, through concluding contracts, negotiating with authorities to the final sale – at every stage, they stand by you as an experienced partner. This builds trust not only between you and ARROWS, but also between you and the financing entities, because they know that the project is firmly handled from a legal perspective. The result is a smoother financing process, less stress, and often better negotiated conditions than if you were on your own.

Practical Tips on How to Get the Best Financing Conditions

In conclusion, here are some practical tips and recommendations for developers and investors who want to obtain the most advantageous financing for their real estate project.

These tips are based on proven practice and can help you save considerable money or prevent complications:

Prepare a top-notch project plan

The better thought out and planned your project is, the better you will negotiate for finances. Have a feasibility study, a realistic budget, a schedule, and market research prepared. When you present professional materials to a potential financier (ideally supported by an independent expert's opinion), you will gain their respect and trust. This will prevent a situation where the bank or investor dictates overly conservative conditions to you just because they do not have enough information about the project.

Diversify sources of finance

Do not rely on just one source. Even if you prefer a bank loan, consider a combination with other forms (investor, crowdfunding, pre-sales). When financing entities see that the project has multiple pillars of financing, they feel safer – for example, the bank will like to see that part of the money is provided by an experienced investor, and the investor will appreciate that you have a loan promise from the bank. In addition, you can compete conditions among themselves – when you know you have an alternative, you are in a better position when negotiating interest or conditions.

Approach multiple institutions and investors

Never bet everything on one card in negotiations. Send your financing request to multiple banks at once, present the project to multiple investors. On one hand, this increases the chance that you will obtain financing at all, and you can also compare individual offers.

When you know that Bank A offers you a loan with a 6% interest rate and Bank B with 5.5%, you have room to negotiate. But be careful to maintain confidentiality and not create pressure in an unfair way – the financial market is interconnected and representatives of institutions can talk to each other. The ideal is to conduct negotiations in parallel, but correctly inform that you are also negotiating elsewhere and that you will decide on the best offer.

Negotiate conditions, not just interest

Many people focus only on the interest rate when financing, but neglect other important conditions. Yet fees, requirements, and contractual arrangements can have a major impact on the final success of the project.

Try to negotiate, for example: a longer loan drawing period so that time does not pressure you; the possibility of extraordinary repayments without large penalties if the project sells well; reasonable covenants (financial indicators) or ideally none; a lower loan arrangement fee (banks sometimes charge 1% of the amount, try to negotiate less); with investors, limit their preferential return so that you keep a fair share of the profit.

Every point of the contract can be modified to some extent – do not take the first draft as unchangeable. If you are not sure what can be improved, contact an advisor or lawyer who knows what is common on the market.

Consider security and guarantees

Offer the financing partner stronger security if it is not too restrictive for you – you can obtain better conditions by doing so. For example, pledging another property you own in addition to the project being built (if possible) can lead to a lower interest rate or a higher borrowed amount. Or provide a guarantee for the loan from the parent company or project owners (of course, only to an acceptable extent).

You can offer the investor that if the project does not achieve certain results, they will receive a bonus or an additional share. By demonstrating your own confidence in success, you will reassure the counterparty. But be careful, always calculate what this means for you so that you do not promise more than is healthy – security should not threaten the existence of your other assets if the worst happens.

Take advantage of subsidy and subsidized programs

Monitor what public programs are available to support housing, business, or regional development. In addition to direct subsidies, there may also be subsidized loans (e.g., the National Development Bank occasionally provides advantageous financing for certain projects) or loan guarantees (a state guarantee can allow a bank to lend even to a riskier project because the state guarantees repayment of part).

If your project has a special element – for example, it is a brownfield or has a social dimension – be sure to check if a suitable program is open for it. Although you will not obtain these funds overnight, they can dramatically improve the project's financial balance. In addition, financing partners like to see that part of the risk is borne by a third party (e.g., a state fund), and will then be more accommodating.

Maintain a good reputation and history

For investors and banks, the credibility of the developer is important. If you already have projects behind you where you properly repaid loans or paid out investors, be sure to emphasize this. Build a reputation as someone who honors commitments. This opens doors to better conditions in the future – the bank will negotiate with you as a proven client all the more willingly, perhaps offering a faster process or a lower margin. Small investors will rather give money to someone they read positive references about than to an unknown newcomer.

So pay attention to fairness – pay on time, inform openly about the progress of the project (for example, in the form of regular reports for investors). A good reputation is an intangible asset that turns into very concrete advantages during financing.

Get advice from experts

Financing large projects is a complex discipline. No one can understand everything in detail – law, finance, civil engineering, marketing… Therefore, surround yourself with experts and delegate specialized tasks. An experienced financial advisor will help you put together the optimal financial mix and approach the right institutions.

A law firm (such as ARROWS) will watch over legal requirements and negotiate a better contractual position for you. A project manager will oversee the fulfillment of milestones so that you meet the financing conditions. By involving experts, you may spend some extra funds on their fees, but you will significantly increase the chance of getting money faster and cheaper – which ultimately pays off many times over. In addition, it will free your hands to focus on the key management of the project as a whole and negotiations with key partners.

Do not hesitate to act in time

Start addressing financing in advance. Ideally, already at the moment when you have the project in the intent phase and are preparing documentation for the building permit, you should map the financing terrain. Secure preliminary non-binding promises from banks or investors even a year in advance. On one hand, you will find out where you stand (if your project is financeable under reasonable conditions), and on the other hand, you will have time to fine-tune what the financing entities require.

For example, the bank may say: "We will lend to you, but get a partner with 20% capital." – you will have time to find them. Or the investor says: "I will invest, but I want you to have a building permit." – you will focus on getting it. If you leave everything until the moment when you already "have to dig", you will get under time pressure and that never creates a good negotiating position. So a proactive approach and a time buffer = better conditions.

By following the above tips, your starting position when looking for money for a real estate project will significantly improve. Remember that the goal is not just to obtain financing at any cost, but to obtain it advantageously and safely. A short-term attractive offer of finance can become expensive if it is associated with risks or disadvantageous arrangements. Better to put work into negotiating now than to solve the consequences of poorly set up financing later.

Conclusion

Obtaining money for a real estate project is a complex process that requires strategy, diligence, and knowledge from many fields. In this article, we have shown that there is a whole range of financing options – from traditional bank loans, through investors, funds, crowdfunding, equity to subsidies or bonds. Each of them can play its role in a successful project financial plan.

The key is to have everything legally covered and thought out so that risks are minimized: good contracts, processed permits, and compliance with regulations are a necessary prerequisite for financing to run smoothly. Examples from practice reminded us that careful preparation and source diversification lead to success, while haste and underestimating rules can lead to failure.

ARROWS Law Firm is ready to stand by you at every step of this journey. With its experience and comprehensive approach, it will help you both with the legal security of financing and with practical negotiations with partners and authorities. Cooperation with professionals significantly increases the chance that you will obtain the necessary money on time, under advantageous conditions, and your project will be realized without unnecessary hitches.

Whether you are a seasoned developer or an investor embarking on your first major project, do not hesitate to get advice and use the available tools. With well-set financing and a strong team of experts by your side, you can turn your real estate visions into reality.

Contact ARROWS for a consultation on your project – they will be happy to help you find the best way to finance and successfully complete the project. Obtaining money for a real estate project can be demanding, but with professional support and the right strategy, you will manage it and your project will have solid foundations for future success.