Jak financovat developerský projekt

Bank Loan as the Foundation: What the Bank Really Requires

However, the bank evaluates more than just numbers. Before approving a loan, it conducts detailed technical, legal, and financial due diligence on the project's feasibility. It verifies whether the project complies with the zoning plan, whether there are risks of existing permits being revoked, and assesses the creditworthiness of potential buyers or tenants. Any legal deficit can jeopardize the entire financing.

In addition to LTV, it analyzes the project's cash flow, the existence of pre-sales (usually 20–30%), and the Debt Service Coverage Ratio (DSCR) – the ratio of net income to annual loan repayments. The required value is typically around 1.2–1.4, which means a 20–40% reserve.

Securing the Loan: Collateral, Guarantees, and Hidden Risks

The bank requires collateral that allows it to recover its money if the project fails. The standard is a lien on the real estate – both the land and the building under construction. In practice, this means the Land Registry records a lien in favor of the bank, and until the loan is repaid, the developer cannot freely dispose of the property.

A problem arises when the bank demands personal guarantees from statutory bodies or owners. In project financing, the guarantee should be limited to the assets of the special purpose vehicle (SPV) – so-called non-recourse or limited-recourse financing. If the bank insists on a broad guarantee, its limits and exceptions must be negotiated.

The cross-default clause represents one of the biggest hidden risks. This clause stipulates that a breach of the terms of any other financial obligation (e.g., a lease, another bank, or a supplier) is automatically considered a breach of this loan agreement as well. A single missed payment can trigger a domino effect and lead to the collapse of the entire financing.

Covenants: The Rules of the Game You Must Follow

Once you start drawing down the loan, you enter a regime of continuous compliance with contractual obligations – covenants. These are rules you must follow, otherwise the bank can accelerate the loan. We divide covenants into:

• Financial covenants – e.g., minimum DSCR value, maximum indebtedness, maintaining a certain level of equity

• Non-financial covenants – e.g., prohibition of further indebtedness without the bank's consent, prohibition of selling key assets, prohibition of distributing profits to sponsors, obligation to provide regular reports

An Event of Default is a critical moment when the bank gains the right to demand immediate repayment of the entire debt. The most common cases include non-payment of an installment, breach of a covenant, insolvency of the project company, or a Material Adverse Change – a broadly defined clause about a substantial adverse change.

Mezzanine Financing: When a Bank Loan Isn't Enough

For projects where the bank finances only a portion of the costs, mezzanine financing comes into play. It is a hybrid instrument that combines debt and equity and stands between bank financing (senior debt) and the developer's own funds (equity).

In legal terms, it is a debtor-creditor relationship based on a loan agreement under the Czech Civil Code, but with one crucial difference – subordination to the senior bank financing. The mezzanine lender gets paid only after the bank is fully satisfied. This arrangement is handled through an intercreditor agreement, where mezzanine lenders commit not to accept any payments until the bank is satisfied.

Advantages: Greater flexibility than a bank loan, ability to finance riskier project phases (land purchase, permit preparation).
Disadvantages: Significantly higher interest rates (often 9–15% p.a.) and higher risk for the investor.

International Investments and Special Regimes

If your project is financed by investors from non-EU countries, the Act on the Screening of Foreign Investments (FDI) comes into play. This law applies not only to strategic technologies but also to the purchase of real estate near critical infrastructure. A huge risk is that the ministry can initiate a review ex officio up to 5 years after the transaction is completed. The penalty can be a fine of up to 2% of the global turnover or even an order to unwind the entire transaction.

Thanks to the ARROWS International network, built over ten years, we handle transactions with an international element daily. We will guide your foreign investors through the entire FDI screening process, arrange for a voluntary consultation, and obtain the legal certainty needed to protect their capital.

The Practical Process: From Application to Drawdown

The process of obtaining a development loan has several phases:

1. Preparation – business plan, project documentation, legal due diligence of the land and permits, financial model with DSCR and cash flow.

2. Negotiation with the bank – term sheet (preliminary conditions), negotiation of covenants, LTV, and collateral.

3. Due diligence – the bank verifies all aspects of the project, often with the help of independent experts.

4. Contractual documentation – loan agreement (a detailed manual for project management), mortgage agreements, and possibly intercreditor agreements.

5. Drawdown – gradual drawdown according to the construction phase, monitored by an independent expert.

A legal review of the loan agreement is an investment that prevents future disputes and potentially devastating consequences. In project financing, a loan agreement is not just a document stating the interest rate – it is a detailed manual that governs the entire project life cycle from the bank's perspective.

Alternative Sources and Combined Financing

Experienced developers often use a two-phase strategy. First, they use more expensive and flexible non-bank funds for the risky phase of land acquisition and obtaining permits (pre-development). Once the project obtains key permits and becomes "legible" to the bank, they refinance it with a cheaper bank loan for the construction phase.

For larger projects, issuing corporate bonds is an option – a way to completely bypass banks and raise capital directly from the public. The terms of issuance are de facto a contract between the issuer and each bondholder-investor and must be drafted precisely in accordance with the Czech Act on Bonds and under the supervision of the Czech National Bank.

Why Legal Support is Essential: Hidden Exceptions and Procedural Details

Individual steps that seem simple have hidden exceptions, procedural details, connections to other regulations, and risks that a layperson often doesn't see. For example:

• A construction delay is not just an operational complication – it is a potential breach of a time covenant in the loan agreement that can trigger acceleration.

• Pre-sales must have the correct legal form for the bank – poorly drafted preliminary agreements may be unacceptable to the bank.

• A change in the ownership structure of the SPV without the bank's consent is often a breach of a covenant and can lead to immediate acceleration.

The lawyers at ARROWS handle this agenda daily, which allows them to significantly reduce the client's time and minimize the risk of errors. Our portfolio includes more than 150 joint-stock companies, 250 limited liability companies, and 50 municipalities and regions. We pride ourselves on speed and high quality. The ARROWS law firm is insured for damages up to CZK 350,000,000. It is therefore safer for the client to have the matter professionally handled.

How ARROWS Helps Developers in Practice

Our lawyers specialize in preparing documentation, contracts, directives, and other materials that protect against fines and penalties. Specifically, we offer:

• Legal consultations during negotiations with banks – we will help you negotiate LTV, covenants, and collateral to make the terms acceptable.

• Preparation and review of loan agreements – every clause is checked from the perspective of your risks.

• Representation in court disputes and licensing, sanction, and administrative proceedings – if a covenant is breached, we will represent you before the bank and in court.

• Expert legal opinions and advice – analysis of contractual risks, FDI screening, legislative changes.

• Legal support for bond issues – preparation of terms of issuance, prospectuses, negotiations with the Czech National Bank.

Thanks to our experience in providing long-term services to our clients, we can connect developers' projects with potential investors. If you are looking for financing or a business partner for a purchase or sale, we would be happy to hear your business idea.

We not only provide legal support for some development projects but also carry them out ourselves, including the possibility of their purchase or arranging their sale. In addition to legal services, we also offer consultations for investors and entrepreneurs looking for suitable partners or opportunities for acquisitions or exits.

Special cooperation with SHARE DEAL Office
We carry out some of these activities with our partners – the company SHARE DEAL Office, which focuses on supporting transactions and connecting investors. The lawyers at ARROWS have experience not only with the legal framework of these transactions but also with their practical implementation – thanks to this, they can advise clients on issues of economic feasibility and negotiating terms.

Financing a development project is a complex process where every mistake can cost millions. From LTV through covenants to cross-default – the lawyers at ARROWS have twenty years of experience in preparing projects for bank financing. Have the entire agenda professionally handled and minimize the risk of financial collapse. Just contact the ARROWS law firm.

For a complete overview of this service, visit our page HERE.