Defining the Amount and Terms of Credit
When defining the terms of the loan, it is important to determine when (during the year) the investor will make installment payments, taking into account the income generated in a specific part of the year (especially when it comes to businesses with pronounced seasonality such as tourism). Since it is a tourist activity – renting out accommodation facilities, the intensity of income generation of which is not the same throughout the year, we advised the client that it is important to define the time of loan repayment, i.e., that the repayment should not begin immediately upon the approval of the credit funds. Since the investor will not yet be generating income from the rental activity at that time, he agreed on an adjusted repayment method with the bank. The client will repay the loan annuities three times a year during the high season: 30.6, 31.7, and 31.8. This method of repayment is very important for the investor because this is the time when prices and occupancy of accommodation facilities are highest.
Investor Costs
As advice to clients, but also to banking employees, we can emphasize that it is extremely important to request a projection of the monthly financial flow, in which it is clearly visible whether the investor will have enough funds at a certain moment to finance initial investments and interest repayment in the period before the income from the project realization starts to arrive. The investor decided to finance the property by using 50% credit and 50% own funds. It is also important for the investor to be aware of the additional costs incurred when seeking credit funds, for which the investor needs to secure funds before the loan approval.
Decision on Purchasing a Property for Tourist Purposes
1. Purchase of a property that has been rented out
The property subject to purchase was owned by another legal entity for the previous two years, which placed it on the market for which interest was proven to exist. Since the tourist activity will be performed by a new company that has not performed this activity so far, the data of the previous owner were used as relevant data for comparing prices, occupancy, and revenue levels. The mentioned data were also used for revenue projection in the business plan. If we are buying a property that has been rented out, the investor has a certain degree of security that they will be able to achieve similar revenues as before their investment.2. Purchase of a property that has not been rented out
In the event that the property being purchased has not generated income from the tourist rental activity so far, a market analysis needs to be done beforehand to get relevant data on prices, occupancy, and demand for the property in question, in order to make a revenue projection. There is a greater risk for the investor if we are buying a property that has not been rented out because in that case, he must work more on the marketing and recognition of the property being rented. In the revenue projection in the business plan, it is important to define realistic, market-based revenues. It is undesirable to inflate revenues and be unrealistic in their projection, as such an investment often “falls through.” On the one hand, in case of loan approval, the client may run into repayment problems, and on the other hand, the bank may determine that the revenues are not realistic, which can ultimately result in the rejection of the loan application.Project Risk
One of the elements that a business plan must contain is certainly a sensitivity analysis in which the bank checks the risk of the project primarily from the aspect of revenue reduction. When analyzing the business plan, specifically the sensitivity analysis, the bank uses the data on how much the revenues from the mentioned activity can be reduced, while the financial flow remains positive throughout the entire observed life of the project, i.e., that the investor can repay the loan.
