What is "cheap" financing?

On the surface, it seems simple – usually reflected in low interest rates, a rigid credit line, personal and cross guarantees, and a cash flow calculated down to the last shekel.
On paper, it looks excellent. In practice, it relies on a dangerous assumption: That the project will run exactly according to plan. No delays, no overruns, and no surprises. Anyone who has completed even one real estate project knows this is purely a theoretical assumption.

Tzviki Lapidot, partner and head of the real estate finance department at Strashnov Calderon Group, explains the truth behind the matter.
The lending bank is indeed interested in the project’s profitability, but that is not what drives it. The bank is a return-oriented player, and its return depends on actual cash flow. The central question for the bank is not how much profit will be made, but whether the entrepreneur can sustain operations over time.

The entrepreneur, on the other hand, is a profit-oriented player. Their power comes from the budget, the zero report, and the forecast. The problem begins when the cash flow – in other words, reality – erodes the budget, which is ultimately just a forecast, and sometimes even a dream.

At this stage, many entrepreneurs rely on their lawyers, assuming they will “take care of everything.” However, lawyers usually enter the picture after the commercial terms have already been finalized. They excel in legal aspects but are not experts in cash flow, financial calculations, or the implications of budget overruns. This is where the dangerous gap arises.

A field example illustrates this clearly. “An entrepreneur came to us with two zero reports, aiming to save on financing costs. A week later, he returned with an ‘offer he couldn’t refuse’: Completing equity at prime plus 3.5% interest. On the surface – an excellent price. But cheap is a budgetary concept, not a cash flow concept,” Tzviki Lapidot explains.

“After a thorough analysis, we built an economic plan for the entrepreneur that primarily addressed the real need: One that allows a project to be executed in reality, not just on paper. The review revealed that he would need NIS 30M, not 10. At the same time, we made sure not to pledge all the company’s projects to the same bank, but created a flexible collateral structure, one that leaves room for future growth and changing needs.”

In the end, we must remember that an entrepreneur’s goal is not to obtain the cheapest interest rate, but to reach the finish line. Sometimes it is better to pay more upfront, but with high certainty that the project will be completed successfully.