Frequently Asked Questions
Real Estate and Development
What’s the maximum amount of money I can borrow for my business or real estate project?
Currently, we do not have a cap amount on or our business or real estate loan programs. Our previous loan amounts range from $5,000 to $2 million. We only make loans that the borrower can pay back to us, plus interest. The biggest restriction on your loan amount is that you have to prove you can pay back the loan from the cash flow on your project and provide adequate collateral to secure the loan. You demonstrate the ability of the project to pay back the loan through your business plan and financial projections. You demonstrate your ability to pay back the loan from collateral through your Personal Financial Statement (PFS), credit score and in-person interviews.
What are the limits on lending?
We generally require a loan to value ratio (LTV) of 90%, meaning that the collateral you are able to provide to us must be worth 10% more than the loan amount. We generally also require a debt coverage ratio of 1.1, meaning that your project must generate 10% more cash flow than the payment on your loan. These guidelines are minimums, and most successful borrowers significantly exceed these limits.
What is collateral?
Collateral is property that you own that can be converted into cash to repay the loan in case your project is not able to do so. Collateral includes cash in savings or checking accounts, investment accounts containing marketable securities, or personal belongings. Collateral can also include items that you own that are worth more than the current balance of any debt on the item, such as your personal residence, a vehicle, investment property, or a business. To demonstrate that you have collateral, you need to fill out a Personal Financial Statement (PFS) showing all of your assets and liabilities.
How much do I have to invest myself?
Typically, we require that a borrower invest a minimum of 10% of their own capital into the project. On average, most successful borrowers invest significantly more than 10%.
What if I don’t have cash saved or own enough collateral?
Unlike a traditional lender, NewTown can make equity investments or participate in joint ventures. In these partnerships, you give up a portion of the ownership and benefits of your project in exchange for NewTown using its own cash and/or collateral to underwrite the investment.
What will my loan term and interest rates be?
Loan terms and rates are crafted for each individual project based on the risks of your particular project. Real estate projects will typically have a 15 year term, while business loans rarely exceed 5 years. Real estate rates are normally 6.55% fixed, while business loans normally vary at 3% above the Prime rate.
How do you determine if I’m eligible for a business or real estate loan?
The process of considering your loan is called underwriting. We use a combination of trained staff, volunteer loan committees and our Board of Directors to underwrite loans based on the amount requested, investment type and other parameters. The underwriting process investigates both the project itself and the finances and character of the person requesting the loan. The first step is for you to complete our intake form and set a meeting with our staff. After your interview, staff will determine if you are ready to make an application. If so, staff will provide you with an application, where you will agree to our guidelines, authorize us to check your credit, submit a business plan, financial projections, a Personal Financial Statement (PFS), three years of your tax returns and any other information pertinent to your project. Once you have submitted all the necessary information, we will review commence underwriting. If we are able to make you a loan offer, we will provide the offer to you in writing for your consideration. If you agree to accept the loan, we will draw up closing documents and schedule a time to close, at which point you commit to borrow the money and we commit to loan it to you. It is your responsibility to read all of the loan documents carefully and ensure you understand them.
How long does it take to receive a loan once I submit my application?
We typically need one month to consider a loan, although we do not guarantee that speed.
Will I receive all my loan funds once my loan is approved?
You will only receive money from your loan as you incur eligible expenses. You will have to submit a draw request each time you are ready to draw down funds, and prove that the funds will be used for the purposes approved in your loan. Draw requests take several days to process.
What happens if I default on my loan?
Defaults happen when you violate the terms of your loan, such as missing payments, failing to provide financial reports or any other condition in your particular loan. If you default on your commitments, we have the right to make you pay off the entire loan immediately. If you are not able to do so, we will use your commitments and collateral to repay ourselves.
Do I have to have a business plan to apply for funding?
We do require you to submit a business plan. Whether you are applying for a real estate loan or a business loan, having a thorough and compelling plan is one of the best ways to demonstrate that you can and will pay back your loan. Depending on your project, you may be able to describe your plan in one page, or it may take dozens. You can find templates for both real estate and business plans on our website or other places on the internet.
Why do I need to submit personal financial information when I’ve provided a complete business plan and projections?
One of the best ways to predict your ability and commitment to repay a loan is by evaluating your personal finances. When we look at your personal finances, we are hoping to see a long track record that you have used credit responsibly, that you have built net worth by increasing assets and reducing liabilities and that you have access to adequate cash (liquidity) to ensure your business or real estate project can survive unexpected challenges.
Should I wait to qualify for funding before I put the property I want to purchase under contract?
We encourage you to gain control of the property prior to pursuing financing. You should work with a Realtor and/or attorney to explore your options, but you can often use an option, letter of intent, purchase and sale agreement or other tool to give you an exclusive option to buy or rent a property, at a fixed price and with clear terms for what is and is not included. Make sure your agreement includes an adequate term for you to perform “due diligence.” The due diligence period allows an exclusive option to cancel the deal without any financial harm. For us to underwrite a loan, we need to know the cost and terms of your lease or purchase.
Is it better to take out a loan with NewTown Macon or a bank?
We work closely with a number of local traditional lenders. Bank loans tend to be the least expensive option for financing your business or real estate project. We often refer clients to banks if we think they may qualify. In many cases, borrowers choose to borrow a portion of the money they need from a bank and a smaller amount from us. Using these two loans together can be an effective blend of the bank’s low rate along with our lower equity requirements. In other cases, borrowers may not qualify based on the strict underwriting criteria used by a traditional lender. Some borrowers also appreciate our expertise, coaching and mission, and borrow from us even at a higher rate than a bank because of these benefits. Only you can evaluate your unique needs to determine the best way to finance your project.
Can I pay off some or all of my loan balance early?
In general, our real estate loans may only be paid off in full and are subject to a pre-payment penalty equal to six-months interest. Most of our business loans may be paid off in whole or in part at any time without any penalty. Your loan documents will include the restrictions and penalties for paying it off early.