A strong site and an attractive projected profit do not automatically make a development finance-ready. Lenders need confidence that the project is commercially sound, appropriately structured and capable of being completed and repaid, even if conditions do not unfold exactly as expected.
The quality of the finance application can therefore make a substantial difference. A well-prepared submission helps a lender understand the opportunity, identify the key risks and see how those risks will be managed. A weak or incomplete submission can create uncertainty, slow down the assessment process or result in the lender declining a project that may otherwise have been fundable.
This guide explains the key areas property developers can strengthen before approaching a bank, non-bank lender or private credit provider.
1. Understand What the Lender Is Really Assessing
Development finance is assessed differently from a standard residential or commercial property loan. The lender is not only assessing the current value of the security property. It is also considering a future project that must pass through planning, construction, sales or leasing, completion and repayment.
Most lenders will assess a combination of the following:
- the developer and project team;
- the site and planning position;
- the development feasibility;
- the amount and source of developer equity;
- the proposed builder and construction contract;
- market demand and valuation evidence;
- presales, pre-leasing or other income support;
- the proposed loan structure;
- the exit strategy; and
- the risks that could affect completion or repayment.
Developers improve their chances of approval when they address each of these areas directly rather than expecting the lender to fill in the gaps.
2. Present a Clear and Credible Development Feasibility
The development feasibility is one of the most important documents in a funding application. It should provide a realistic picture of the project's total costs, projected revenue, funding requirement and expected return.
A lender will generally expect the feasibility to identify all material project costs, including:
- land acquisition or current land value;
- stamp duty and acquisition expenses;
- planning, design and consultant costs;
- authority contributions and infrastructure charges;
- demolition, civil and construction costs;
- finance costs and lender fees;
- sales and marketing expenses;
- legal, valuation and quantity surveying costs;
- rates, taxes, insurance and holding costs;
- development management fees where applicable; and
- an appropriate contingency allowance.
Revenue assumptions should also be supported. For a residential project, this may include comparable sales evidence and the project valuation. For a commercial or specialised development, it may include leasing evidence, market rents, incentives, capitalisation rates and the strength of the proposed tenant or operator.
The feasibility should not simply be designed to produce the highest possible profit. It should be credible under lender scrutiny.
A lender is likely to test what happens if:
- construction costs increase;
- sales prices or rents are lower than forecast;
- settlement or leasing takes longer;
- interest is payable for longer than expected;
- the project experiences delays; or
- additional equity is required.
Developers should run their own sensitivity analysis before submitting the transaction. It is better to identify and address a weak point early than have the lender discover it during credit assessment.
“The best submission answers the credit team's questions before they ask them.”
— The Australian Property Development Handbook
3. Demonstrate That the Project Has an Adequate Profit Margin
Development profit is more than the developer's reward for completing the project. It is also an important risk buffer.
If projected profit is too thin, relatively modest changes in costs, values or timing can eliminate the return and place the lender's repayment at risk. A lender will therefore consider the profit margin in relation to the complexity, duration and risk profile of the project.
A straightforward, well-located project with a short construction period may be assessed differently from a large staged development, a speculative commercial project or a development involving complex planning and construction risks.
Developers can strengthen the application by:
- using evidence-based cost and revenue assumptions;
- avoiding unsupported increases in projected values;
- including a realistic contingency;
- showing the effect of downside scenarios; and
- explaining why the projected return is appropriate for the project's risks.
Where the margin is under pressure, the developer may need to renegotiate the land price, redesign the project, reduce costs, increase equity, obtain stronger presales or leasing support, or reconsider whether the project should proceed in its current form.
4. Contribute Genuine and Verifiable Equity
Lenders generally expect the developer to have meaningful capital committed to the project. This aligns the developer's interests with the lender and provides a buffer against unforeseen costs.
Developer equity may include:
- cash already contributed;
- equity in the development site;
- deposits and acquisition costs already paid;
- approved project costs already funded by the developer; or
- additional cash available to be injected before or during construction.
The source of the equity matters. A lender may ask for bank statements, settlement records, loan statements, asset and liability statements or evidence of investor commitments.
Developers should clearly distinguish between genuine equity and funds that are themselves borrowed. Undisclosed secondary debt, informal investor loans or unverified capital commitments can create significant concerns during credit assessment.
Where external equity is being used, the lender will usually want to understand:
- who is providing it;
- when the funds will be available;
- whether the investment is debt or equity;
- what return or priority the investor receives;
- whether the investor requires security; and
- how the arrangement interacts with the senior lender's rights.
The earlier the capital structure is clarified, the easier it is to approach the right type of lender.
5. Build a Strong and Relevant Project Team
Development finance is heavily influenced by the people responsible for delivering the project.
Lenders do not only assess the borrowing entity. They also consider the experience and capability of the developer, builder, development manager, consultants and advisers.
A strong site and an attractive projected profit do not automatically make a development finance-ready.
A strong project team may include:
- an experienced developer or development manager;
- a suitably licensed and financially capable builder;
- an architect and relevant design consultants;
- a town planner;
- civil, structural and services engineers;
- a quantity surveyor;
- a project marketer or selling agent;
- leasing specialists where relevant; and
- experienced legal, accounting and finance advisers.
The team should be appropriate for the type and scale of the development. Completing a small townhouse project does not automatically demonstrate the experience required to deliver a major apartment tower or complex mixed-use development.
Developers should provide concise project resumes showing:
- similar projects completed;
- the role performed on each project;
- project size and value;
- whether the project was completed on time and within budget;
- any relevant challenges that were successfully managed; and
- the commercial outcome where it can be disclosed.
First-time developers may still obtain finance, but they often need to reduce execution risk by partnering with experienced professionals, contributing more equity or undertaking a smaller and less complex first project.
Talk to BluCow about your project →
6. Resolve the Planning and Approval Position
The more certainty a lender has about what can be built, the stronger the finance application will generally be.
Depending on the project and lender, relevant documents may include:
- development approval;
- approved plans;
- conditions of approval;
- building approval;
- operational works approval;
- subdivision approval;
- environmental reports;
- traffic, flood, acoustic or contamination reports;
- infrastructure agreements; and
- evidence that key pre-construction conditions can be satisfied.
A project that is subject to unresolved planning risks may still be financeable, but it may require a different funding structure. For example, an acquisition or land loan may be required before a construction facility can be approved.
Developers should avoid describing an approval as “imminent” without evidence. It is better to provide a clear planning status, identify the remaining steps and explain the expected timeframe and risks.
7. Select the Builder Carefully
The builder is central to the lender's assessment because construction risk is one of the main risks in development finance.
A lender may consider:
- the builder's licence and track record;
- experience with comparable projects;
- financial capacity;
- current workload;
- references and previous performance;
- the proposed contract type;
- the contract price and exclusions;
- the construction program;
- security, guarantees and liquidated damages; and
- the quantity surveyor's assessment of the contract and budget.
The lowest-priced builder is not always the most financeable choice. A materially low quote may indicate missing scope, unrealistic allowances or a higher risk of variations and disputes.
Developers should ensure that the construction contract, plans, specifications and feasibility are aligned. Differences between these documents can create delays and unexpected funding gaps.
Where the builder and developer are related parties, the lender may apply additional scrutiny to the contract, margins, payment arrangements and cost evidence.
8. Support the End Value With Market Evidence
The lender must be comfortable that the completed project value is achievable.
An independent valuation is normally central to this assessment, but developers can improve the quality of the submission by providing supporting market evidence from the outset.
For residential developments, useful information may include:
- comparable settled sales;
- competing projects;
- current stock levels;
- buyer demand;
- recent presale activity;
- price points and product mix; and
- expected sales rates.
For commercial, industrial, retail or specialised assets, relevant evidence may include:
- comparable rents and sales;
- lease terms;
- tenant incentives;
- market yields;
- vacancy rates;
- tenant or operator covenant strength;
- location and catchment analysis; and
- investment market demand.
The developer's projected revenue should reconcile with the valuation and sales or leasing strategy. If the developer is relying on values materially above the valuer's assessment, the funding structure may need to be revised.
“A tidy feasibility signals a tidy developer.”
— The Australian Property Development Handbook
9. Strengthen Presales or Pre-Leasing Where Required
Presale and pre-leasing requirements vary depending on the lender, asset class, location, project scale and market conditions.
Where presales are required, lenders may assess:
- the number and value of contracts;
- buyer deposits;
- sunset dates and finance conditions;
- related-party purchasers;
- concentration of sales to a small number of buyers;
- foreign buyer exposure;
- whether prices are consistent with the valuation; and
- the expected settlement risk.
For commercial projects, lenders may focus on:
- the amount of space pre-leased;
- the lease term;
- rent and incentives;
- tenant financial strength;
- lease conditions;
- fit-out obligations; and
- the likelihood of the tenant taking occupation.
Developers should not treat every signed contract or heads of agreement as equally valuable. The quality and enforceability of the commitment are important.
If the project is seeking finance without presales or pre-leasing, the application should clearly explain why that approach is reasonable and how the increased market risk will be managed.
10. Provide a Detailed and Realistic Exit Strategy
The lender's primary question is not simply, “Can this project be built?” It is also, “How will the loan be repaid?”
Common exit strategies include:
- settling presold properties;
- selling completed stock;
- selling the completed investment asset;
- refinancing into a commercial investment loan;
- retaining selected stock and refinancing it; or
- repaying the facility through staged land or lot sales.
The exit strategy should be specific, realistic and supported by evidence.
For example, a developer planning to retain a completed childcare centre should demonstrate that the completed property is expected to generate sufficient income and meet the requirements of the proposed investment lender. A statement that the project will simply be “refinanced on completion” is not enough if serviceability, valuation or leasing conditions have not been considered.
The quality of the finance application can therefore make a substantial difference.
Where the primary exit is sales, the developer should also consider:
- the expected sales rate;
- settlement timeframes;
- selling costs;
- incentives or discounts;
- debt release prices; and
- what happens if some stock remains unsold.
A credible secondary exit can further strengthen the application.
11. Keep the Ownership and Borrowing Structure Simple
Complex structures are not automatically unacceptable, but they need to be clearly explained.
The lender may need to understand:
- the landowning entity;
- the borrowing entity;
- the development manager;
- shareholders, directors and ultimate beneficial owners;
- trusts and trustee companies;
- joint venture arrangements;
- related-party loans;
- investor priority rights; and
- guarantees and security support.
Unexpected ownership issues discovered late in the process can delay legal documentation and credit approval.
Developers should prepare an accurate structure diagram and ensure company, trust and joint venture documents are available. The commercial arrangement between the parties should be settled before finance documents are issued.
Running your own numbers?
Open the feasibility calculators →12. Submit Complete and Consistent Information
Incomplete applications create more questions and slow the approval process.
A well-organised funding submission will often include:
- an executive summary;
- project description and development strategy;
- ownership and borrowing structure;
- developer and project team experience;
- development approval and plans;
- current feasibility;
- development program;
- construction contract or cost plan;
- valuation where available;
- quantity surveyor information;
- presale or leasing schedule;
- proposed loan amount and purpose;
- source and use of funds;
- evidence of equity;
- exit strategy;
- asset and liability statements;
- company and personal financial information; and
- a summary of key risks and mitigants.
Consistency is critical. The project cost, loan amount, equity contribution, construction period and end value should not change from one document to another without explanation.
A lender is more likely to trust a submission that is transparent about the project's weaknesses than one that attempts to hide them.
13. Allow Enough Time for Finance Approval
Development finance usually involves several parties, including the lender, valuer, quantity surveyor, lawyers, insurance advisers, builder and consultants.
Even when a lender is interested in the transaction, approval and settlement can be delayed by:
- incomplete information;
- valuation issues;
- quantity surveyor queries;
- planning conditions;
- changes to the construction contract;
- borrower structure issues;
- investor documentation;
- insurance requirements; or
- negotiations over the facility terms.
Developers should begin the funding process early enough to compare options, address issues and negotiate appropriately.
A deadline created by an expiring land contract or an urgent need to pay the builder can weaken the developer's negotiating position and limit the available lender options.
14. Choose the Right Lender for the Project
Not every lender is suitable for every development.
The appropriate lender may depend on:
- the project type and location;
- loan size;
- developer experience;
- planning status;
- presales or leasing;
- required leverage;
- construction contract;
- time available to settle;
- proposed exit; and
- the developer's tolerance for cost and conditions.
A major bank may offer attractive pricing but require a lower-risk, highly documented transaction. A non-bank or private lender may be able to consider a more complex project, higher leverage, limited presales or a shorter settlement timeframe, although the cost and conditions may be different.
The cheapest headline interest rate is not always the best overall funding solution. Developers should also compare:
- establishment and line fees;
- interest calculation and capitalisation;
- valuation and quantity surveyor costs;
- presale or pre-leasing conditions;
- covenants;
- extension rights;
- default provisions;
- minimum interest periods;
- early repayment costs; and
- the lender's ability to fund variations or cost overruns.
“Presentation is not spin — it is respect for the reader's time.”
— The Australian Property Development Handbook
15. Address Problems Before the Lender Raises Them
Every development has risks. A lender does not expect a project to be risk-free, but it does expect the risks to be understood and managed.
Common risks may include:
- planning uncertainty;
- construction escalation;
- builder concentration or insolvency risk;
- environmental or site issues;
- weak sales demand;
- leasing risk;
- valuation uncertainty;
- cost overruns;
- delays;
- interest-rate movement; and
- dependence on a single exit strategy.
A strong application identifies the major risks and explains the mitigants.
Development finance is assessed differently from a standard residential or commercial property loan.
For example:
Risk: The project has limited presales.
Mitigants: The site is in a tightly held location, the product is competitively priced, the developer has appointed an experienced project marketer, the valuation supports the price points and the developer has sufficient equity to carry a slower sales period.
This approach shows that the developer understands the transaction from the lender's perspective.
Example: A Stronger Development Finance Application
Consider two developers seeking finance for similar townhouse projects.
Developer A provides a short feasibility showing an attractive profit but does not include detailed cost evidence. The construction quote excludes several items, the approval conditions have not been reviewed, the developer's equity source is unclear and the proposed exit is described only as “sales on completion”.
Developer B provides:
- a detailed and reconciled feasibility;
- an approved development application and conditions summary;
- a fixed-price building contract subject to clearly identified items;
- a quantity surveyor-reviewed cost plan;
- evidence of cash and land equity;
- comparable project experience;
- market evidence supporting the sales prices;
- a documented sales strategy;
- downside sensitivity analysis; and
- a clear primary and secondary exit strategy.
Even if both projects initially appear profitable, Developer B gives the lender far greater confidence. The lender can assess the project more efficiently, understand where the risks sit and determine whether the proposed facility is appropriate.
This does not guarantee approval, but it substantially improves the quality and credibility of the application.
Development Finance Application Checklist
Before approaching a lender, a developer should be able to answer the following questions:
- Is the planning and approval position clear?
- Is the feasibility complete, current and evidence-based?
- Does the project retain an acceptable margin under downside scenarios?
- Are all construction and development costs included?
- Is the contingency appropriate?
- Is the developer equity available and verifiable?
- Does the project team have relevant experience?
- Is the builder suitable and financially capable?
- Are the contract, plans and feasibility consistent?
- Is the completed value supported by market evidence?
- Are presales or pre-leasing sufficient for the proposed lender?
- Is the ownership and borrowing structure clear?
- Is the exit strategy specific and achievable?
- Is there a credible backup exit?
- Has sufficient time been allowed for approval and settlement?
These principles come from our free guide.
Download the handbook →Frequently Asked Questions
How much equity does a property developer need?
The required equity depends on the project, lender, valuation, total development cost, developer experience, presales, planning status and overall risk profile. The lender will also consider the form and source of the equity, not only the amount.
Can a first-time developer obtain development finance?
Yes, but the lender may require additional risk protection. This could include a more experienced project team, a stronger builder, additional equity, lower leverage, presales, external development management or a smaller and simpler project.
Do all development lenders require presales?
No. Presale requirements vary according to the lender and the project's characteristics. Some lenders may consider projects with limited or no presales where the location, equity contribution, developer experience, market evidence and exit strategy are sufficiently strong.
What is the most common reason a development finance application is delayed?
Delays are often caused by incomplete or inconsistent information. Valuation issues, construction cost questions, unresolved planning conditions, ownership structures and unclear equity sources are also common causes.
Should a developer approach the bank before obtaining a valuation?
The approach depends on the transaction and lender. Some lenders prefer to instruct the valuation themselves after reviewing the initial submission. Obtaining an unsuitable valuation too early may add cost without improving the application. A finance adviser can help determine the appropriate sequence.
Is the lowest interest rate always the best development loan?
No. The total facility cost, leverage, conditions, presale requirements, timing, flexibility, extension options and lender execution capability may be equally important. A lower-rate facility that cannot settle on time or does not provide sufficient funding may not be the best commercial outcome.
Final Thoughts
The strongest development finance applications make the lender's assessment easier.
They provide clear information, realistic assumptions and evidence that the developer understands both the opportunity and the risks. They also demonstrate that the developer has the capital, experience, project team and exit strategy required to deliver the project and repay the facility.
Developers who prepare early are generally in a better position to compare lenders, negotiate terms, resolve issues and avoid urgent funding decisions.
How BluCow Capital Can Help
BluCow Capital works with property developers to assess funding requirements, structure development finance applications and identify suitable bank, non-bank and private credit options.
We can help review the project feasibility, capital structure, equity contribution, construction position, lender information requirements and proposed exit before the transaction is presented to the market.
To discuss finance for an upcoming development, contact BluCow Capital or submit an enquiry through blucowcapital.com.au.
Disclaimer
This article provides general information only and does not constitute financial, legal, tax, investment or credit advice. Development finance requirements vary between lenders and transactions. Developers should obtain advice appropriate to their circumstances before entering into any funding arrangement.