Developing a procedure for raising funds during construction
Raising funds to finance construction is an important stage in the implementation of any construction project. The successful completion of construction and compliance with legal regulations depend on the correct identification of funding sources, legalization of investments, and control over the use of funds.
1. Main sources of construction financing
When raising funds for construction, various sources of financing may be used, in particular
- Own funds of the developer or investor.
- Bank loans (mortgage lending, construction loans).
- Financing through construction financing funds (CFF), in accordance with the Law of Ukraine “On Financial and Credit Mechanisms and Management of Property Rights in Housing Construction and Real Estate Transactions”.
- Investment agreements with legal entities and individuals.
- Issuance of securities, including corporate bonds linked to real estate values.
- State and local programs to support housing construction.
2. Legalization of fundraising
Proper legalization of raising financial resources for construction must comply with the requirements of the current legislation of Ukraine. The main legal acts regulating this process are:
- The Civil Code of Ukraine
- The Commercial Code of Ukraine
- The Law of Ukraine “On Investment Activity”
- The Law of Ukraine “On Regulation of Urban Development”
- The Law of Ukraine “On Financial and Credit Mechanisms and Management of Property Rights in Housing Construction and Real Estate Transactions”
- State Construction Norms (SBN), which establish requirements for design and construction
3. Fundraising procedure
The procedure for raising funds to finance construction includes several key stages:
3.1 Identification of the need for financing
At this stage, a financial model of construction is developed, which includes:
- The total estimated cost of the project.
- Sources of financing and their structure.
- Schedule of funds receipt and their use.
3.2. Choosing a financing scheme
The choice of a specific financing mechanism depends on the type of object, its purpose, and legal requirements. The most commonly used are:
- CFF – to raise funds from individuals for housing construction.
- Joint investment agreements – with the participation of several investors.
- Direct investments – financing from large companies or developers.
3.3. Conclusion of contracts
The main types of contracts are:
- Investment agreement – stipulates the terms of the investor’s participation in construction financing.
- Equity participation agreement – used when raising funds from individuals.
- Loan agreement – executed when obtaining a bank loan.
- Property rights purchase and sale agreement – transfer of rights to a future real estate object.
3.4. Control over the targeted use of funds
Control is carried out through:
- Internal financial monitoring.
- Reporting to investors.
- Audit checks.
- Use of escrow accounts (guaranteed accounts to protect investments).
4. Risks and their minimization
The following risks are possible when raising funds for construction:
- Legal risks – related to non-compliance with legal requirements.
- Financial risks – lack of funds or their misuse.
- Risks of unscrupulous developers – failure to fulfill contractual obligations.
- Real estate market fluctuations – the impact of external factors on project profitability.
To minimize the risks, it is necessary to:
- Properly execute all legal documents.
- Use protective mechanisms (for example, investment insurance).
- Conduct regular audits and financial monitoring.
- Choose trusted contractors and partners.
Contact GlobalBud Ukraine
Raising funds for construction is a complex process that requires a clear financial and legal structure. Compliance with legal regulations and effective financial management helps ensure the reliability of investments and the successful implementation of a construction project.
GlobalBud Ukraine has experienced engineers and lawyers who will help you develop a procedure and procedure for raising funds in accordance with legal requirements. Contact us for a consultation!
