Financing TAMA 38 through a Bank Loan

Financing TAMA 38: Banks are Rigid, Non-Bank Lenders Offer a Flexible Solution

TAMA 38, the national program for strengthening buildings against earthquakes and upgrading them, has been a central part of urban development in Israel in recent years. The program offers numerous benefits to both residents and developers – from increased building rights to improving the quality of life in a reinforced and modern building. However, like any real estate project, one of the main challenges in TAMA 38 is obtaining financing. While traditional banks impose rigid and complex requirements, the non-bank financing market offers more accessible and flexible alternatives.

The Challenge of Bank Financing for TAMA 38

Banks in Israel, known for their conservative and cautious approach, set a high bar for obtaining financing for TAMA 38 projects. Banks assess the risks involved in such projects, which include regulatory uncertainty, difficulties in obtaining permits, and the complexities arising from interactions with existing residents in the building. To receive bank financing, developers are required to meet a series of stringent requirements, including:

• High Equity: Banks require developers to provide equity of 25%-30% of the project cost. For small and medium-sized developers, this requirement can pose a significant obstacle, as this equity often includes all the developer's liquid assets.

• Proven Experience: Banks expect developers to demonstrate previous experience in managing similar projects, and in some cases, they set particularly high standards in this regard. A developer without an impressive track record in past projects may find it very challenging to obtain bank financing.

• Collateral and Guarantees: In addition to equity, banks require additional collateral such as land liens, personal guarantees, and in certain cases, guarantees from the residents themselves. These requirements put the developer in a high-risk situation and impact their financial flexibility.

• Lengthy and Complicated Process: The loan approval process can be long and cumbersome, involving comprehensive checks of the project, the collateral, and the developer themselves. This can lead to significant delays in the project timeline.

The difficulties in obtaining bank financing for TAMA 38 may deter many developers, especially small and medium-sized ones, making the project less viable for them. However, the need for financing for TAMA 38 projects has led to significant growth in the non-bank financing market.

The Solution: Non-Bank Financing for TAMA 38 Projects

In response to the challenges of bank financing, various non-bank financial institutions, including investment funds, insurance companies, and private lenders, have entered the market. These entities offer financing solutions for TAMA 38 that are tailored to the needs and characteristics of each project. The main advantages of non-bank financing include:

• Flexibility in Equity and Collateral Requirements: Non-bank entities are often more willing to provide financing even to developers with lower equity, and sometimes offer financing options of up to 100% of the project cost. Additionally, their collateral and guarantee requirements tend to be more flexible, which reduces risk for the developer and allows for greater financial flexibility.

• Quick and Simple Approval Process: One of the prominent advantages of non-bank financing is the speed of the approval process. In many cases, financing approval can be obtained within just a few weeks, compared to long months in the banking system. This allows the developer to start work on-site quickly and maintain shorter project timelines.

• Personalization of Loan Terms: Unlike banks, non-bank entities often offer customization of loan terms to the specific needs of the project and the developer. This customization can include tailored repayment schedules, grace periods, and creative financing solutions suited to the various phases of the TAMA 38 project.

• Close Financial Guidance: Many non-bank lenders offer close guidance throughout all stages of the project, including financial, legal, and technical support. This support can be critical to the success of the project, especially for less experienced developers.

Examples from the Field

The shift towards non-bank financing solutions has accelerated in recent years, with entities like investment funds and insurance companies vigorously entering this field. Here are two notable examples:

• Altschuler Shaham Fund: The Altschuler Shaham investment fund, known primarily for managing financial investments, has established a dedicated arm for financing TAMA 38 projects. The fund offers loans to developers of up to 100 million NIS per project, with flexible terms tailored to the specific project. The fund provides financing for developers with relatively low equity and offers convenient repayment schedules that allow for financial flexibility throughout the project.

• Menorah Mivtachim: Menorah Mivtachim, one of the largest insurance companies in Israel, offers a range of financing solutions for TAMA 38. The company provides full financing of up to 100% of the project cost, without the need for significant equity from the developer. Additionally, the company offers close financial guidance, including legal and economic advice, providing the developer with confidence throughout the project process.

The Importance of Choosing the Right Financing Source

When selecting a financing source for a TAMA 38 project, developers must carefully consider the various options and choose the financing that best meets the unique needs of the project. Key considerations include:

• Cost of Financing: The interest rate, associated fees, and additional costs of the loan should be examined. Non-bank financing may be more expensive than bank financing, so it is important to understand the total costs and factor them into the project's business plan.

• Loan Terms: Loan terms include the repayment period, repayment schedule, and flexibility in terms. These terms can affect the project's cash flow and the developer's ability to meet payments over time.

• Lender's Reputation and Financial Stability: It is important to check the lender's reputation, their experience in financing similar projects, and their financial stability. A stable and reliable lender will be able to offer better terms and ensure quality guidance throughout the project.

• Availability and Speed of Approval: The speed of the approval process and the receipt of funds is an important factor in TAMA 38 projects, where delays can lead to additional costs and conflicts with residents. Non-bank financing can offer a significant advantage in this area.

Conclusion: Financing for TAMA 38 as a Key to Success

Financing for TAMA 38 is a critical component of project success. While banks impose strict requirements that make it difficult for many developers to obtain financing, non-bank lenders offer more flexible and accessible solutions. Through thoughtful selection of a financing source, developers can overcome financial obstacles, successfully implement TAMA 38 projects, and improve the quality of life for residents.

The growing trend of non-bank financing for TAMA 38 projects provides developers with new options and opens the door for small and medium-sized entrepreneurs to enter the field. However, it is important to conduct a thorough examination of each financing option, weigh the advantages and disadvantages, and choose the solution that best fits the unique needs of both the project and the developer.

Thanks to the flexibility, speed, and customization offered by non-bank entities, TAMA 38 projects can be not only more financially secure but also more beneficial for all parties involved.