Find out how this often overlooked, but extremely effective financial instrument can help you retain millions of working capital.
Individuals purchasing condominiums are often required to provide the developer of the property a 10% cash deposit, which must be held in escrow. An escrow deposit bond can be used in this scenario, as it allows developers to access the cash that was placed in escrow, and ensure they hold on to working capital.
For example, a developer may be able to pre-sell (before construction has commenced or before it has been completed) 50% of a $50,000,000 condominium complex. If the condominium buyers provide 10% cash deposits (as often required) of the $25,000,000 pre-sale cash the developer acquired, that leaves $2,500,000 in an escrow account that can't be utilized/ties up working capital.
In the scenario above, obtaining an escrow deposit bond allows the developer to utilize the total in escrow ($2,500,000). These bonds generally cost about 2-3% of the fund amount in escrow (in this example, the bond premium would be $50,000 - $75,000).