What is Meant by Takeout?
A takeout loan or takeout funding refers to long-term financing that the lender assures to provide on a specific date or when specific project completion criteria are met. It is quite common in property development. Loans for takeovers are commonly used in the development of properties.
Takeout in Different Contexts
Takeout is a term that has many applications in the finance sector. Still, the two main applications for this term are as a form of borrowing or a business purchase.
Takeout may also refer to either a loan replacing another loan or a slang term for a company's purchase through an acquisition, merger, or buyout. A takeout loan is a lending process by which the original loan is replaced with a loan which is subsequently procured.
A developer could secure a short-term loan to scrap an existing structure and pay the crew for the construction of a new one. If the new structure is in place or a large portion of it is complete, the developer may secure longer-term funding to pay off the original loan.
Takeout, as a colloquial term, refers to a company's purchase, whether through an acquisition, merger, or another form of purchase. It can be applied in any context without bothering about what is being taken over. Takeout can be a hostile takeover, a friendly merger, or a leveraged/managed purchase.
It is said that a company is "in play" if it is likely to be purchased in the future, or has offers from buyers at present. A takeout refers to the business being put out of play, which happens on completion of the acquisition.
Takeout Commitment
A takeout commitment is a lender's assurance to provide ongoing funding that will "take out" interim or construction funding under specified conditions or at a certain point in time or stage of the project.
The takeout agreement guarantees the lender of the interim or construction loan that funding for a commercial real estate development will be sufficient to pay off the interim funding or construction loan. This can usually be in the form of a longer duration commercial mortgage. Another commercial mortgage lender has promised to give the borrower a long-term commercial mortgage to take out previous short-term financing.
