Construction and development finance: how projects get funded from slab to settlement

A development loan is less a loan than a funding schedule. The lender agrees a limit up front, then pays it out a slice at a time as the slab is poured, the frame goes up and the roof goes on. Most of what makes these facilities succeed or struggle happens in that schedule: how much of your own money goes in first, how each draw is checked, and how much interest piles up before the first buyer settles.

Below we deal with two quite different borrowers: an owner building premises for their own business, and a developer building townhouses, apartments or industrial units to sell.

Construction loan or development finance?

The two terms get used loosely, but lenders treat them differently.

• Construction loan. You’re building something to keep: a workshop, a childcare centre, a medical suite. The lender cares about whether your business can service the debt once the building is finished, and the loan often rolls into a standard commercial property loan at completion.
• Development finance. You’re building to sell or hold as an investment. The lender cares about the project itself: the cost, the end value, the presales and the builder. Repayment comes from settlements, not trading income.

Our head-to-head on development finance vs a construction loan goes further into which one your project needs.

How do lenders size a development facility?

Almost every development lender runs two tests and lends the lower result.

1. Loan to cost (LTC). The facility as a share of total project cost: land, construction, consultants, council contributions, selling costs, interest and a contingency.
2. Loan to value on completion. The facility as a share of the gross realisation value, which is the valuer’s estimate of what the finished stock will sell for, usually measured excluding GST.

A worked illustration, with limits chosen only to show the arithmetic: a six-townhouse project costs $4.2m all-in and the valuer puts the finished value at $5.6m. If a lender’s limits were 80% of cost and 65% of end value, the cost test allows $3.36m and the value test allows $3.64m. The lender offers $3.36m, and the developer must bring the remaining $840k in land equity or cash before the first construction draw. If presales are thin or the builder is untested, those percentages shrink.

The loan to cost ratio entry explains the measure in more detail, and our LVR calculator helps you sense-check the value side.

Progress draws and the quantity surveyor

Money doesn’t flow to you; it flows to the builder, stage by stage, once an independent quantity surveyor (QS) appointed by the lender confirms the work is done. Before the first draw the QS reviews the budget, the building contract and the program. At every draw after that, they certify the claim and run a cost-to-complete test: is the undrawn facility, plus any equity still to come, enough to finish the job?

If the answer is no, the lender pauses draws until you top up the shortfall. That one rule is why lenders insist on a fixed-price contract with a licensed builder, a contingency line in the budget, and home warranty insurance where the state requires it for residential work.

Weighing up a site and unsure how a funder would see it? Tell us about the project; the form takes about a minute.

What lenders check on a development deal

Lender focus	What they want to see
The site	Approved development application, zoning, title, any easements or contamination
The numbers	Feasibility with realistic sale prices, full costs, contingency and a profit margin that survives a price dip
Presales	Exchanged contracts with genuine deposits; banks usually want more than non-banks
The builder	Licence, track record, financial strength, a fixed-price contract and warranty insurance
Your equity	How much you contribute, in what form (land, cash, a partner) and when it goes in
The exit	Settlement of presales, sale of remaining stock, or a refinance into an investment loan

What does development finance cost?

More than the headline interest line suggests, because most of the charges are rolled into the facility rather than paid monthly. Expect some combination of an establishment fee, a line fee on the approved limit (charged whether or not you’ve drawn it), interest on drawn funds, QS and valuation fees, the lender’s legal costs, and sometimes an exit fee or a share of profit on private credit deals.

Interest is usually capitalised into an interest reserve inside the loan, so you don’t feel it month to month. You feel it at the end, when settlements must clear the whole balance. Ask every funder for a single figure: total dollars repayable at the expected completion date, plus the cost of a three-month delay. ASIC’s September 2025 report on private credit flagged opaque fee structures across parts of that market, so ask plainly about any fee paid to a fund manager or arranger on top of the lender’s own charges.

Two timing traps catch developers out:

• GST withheld by buyers. On new homes and apartments, the purchaser usually remits a slice of the price directly to the ATO on settlement day, so the cash reaching you, and your lender, at each settlement is lower than the contract price.
• Completion paperwork. In NSW, developers of residential apartment buildings must lodge an expected completion notice between six and twelve months before applying for an occupation certificate. Miss it and the certificate, and every settlement that depends on it, can be delayed.

Pros and cons

In favour: you pay interest only on what’s drawn, the facility is built around the real shape of a project, and the QS oversight gives you an independent check on the builder.

Against: heavy upfront equity, slow approvals that can involve presales and detailed feasibilities, and costs that compound if the build or the sales campaign runs late.

If the bank won’t fund the project

Banks are excellent development lenders when a project fits: experienced developer, strong presales, solid equity. If you have those, take a bank offer seriously, because it’s often the cheapest money available.

When the bank asks for a presale count your market can’t deliver, or more equity than you have, the usual alternatives are:

• Non-bank and private credit funders that lend with fewer presales. Several have profiles here, including Trilogy Funds, Qualitas and Pallas Capital.
• Mezzanine finance sitting behind the senior lender to reduce the equity you need, at a higher cost.
• A land loan first. If the approval is still months away, a land loan for business can hold the site while plans are finalised.
• Residual stock finance at the end. If units remain unsold when the construction facility expires, residual stock loans can repay it and give the sales campaign more time.

For a purpose-first view, see funding for property development.

Bring us the project, not just the loan amount

Developments stall at the funding stage for all sorts of reasons: a valuation that came in light, presales that stalled, a lender that changed its appetite midway. We look at the whole picture, from the site and the feasibility to the exit, and work out which kind of funder suits it.

Sending it through is a sixty-second job, and an enquiry at this stage involves no credit check at all. Nobody forwards your feasibility to a queue of funders: a specialist reviews it personally and rings you back. The more honest the costs, end values and presale count you enter, the better our first suggestion will match the project.

Start a development funding enquiry →