Construction Funding
Since the GFC, lenders have been more cautious about how they fund construction projects. Whether you're a builder or developer and need to fund anything from a couple to over a hundred houses or apartments, or if you're looking at building your own premises, there's still plenty of options for you.
Generally for residential or commercial construction projects, the lenders tend to work with two main funding parameters being:
These vary between banks and you normally need to avoid exceeding both these. As as a guide, the mainstream lenders will fund up to 70-80% of the LTC provided that it's no more than 60-70% of the TOC. If your project falls outside these parameters don't worry, we have access to non-mainstreams lenders who can consider your requirements.
There are a certain number of things you'll need to provide in order for us to go into bat for you and seek the funding structure that you need. These include:
Don't worry if you don't have everything yet, we can get together and start from the feasibility study and take it from there.
We've attached a link to a feasibility template to get you started:
Generally for residential or commercial construction projects, the lenders tend to work with two main funding parameters being:
- Loan to Cost (LTC) ratio
- Loan to Tentative on Completion (TOC) value ratio
These vary between banks and you normally need to avoid exceeding both these. As as a guide, the mainstream lenders will fund up to 70-80% of the LTC provided that it's no more than 60-70% of the TOC. If your project falls outside these parameters don't worry, we have access to non-mainstreams lenders who can consider your requirements.
There are a certain number of things you'll need to provide in order for us to go into bat for you and seek the funding structure that you need. These include:
- Details of your experience in this area, past projects completed and your own personal financial position and ability to cover cost over-runs
- Project feasibility study - you've probably done one of these before you considered the project to see what profit you'd make
- Copies of the stamped council approved working drawings
- Copy of the planning permit
- Copy of the specification and draft fixed price building contract
- Details of your professional team i.e. builder, quantity surveyor, project manager, lawyer, architect & marketing agents
- Copies of any pre-sales contracts (if applicable)
- Copies of any agreements to lease (if applicable)
- Copy of the contract for sale for the site
- Last 6 months loan statements for any existing lending facility secured against the site
Don't worry if you don't have everything yet, we can get together and start from the feasibility study and take it from there.
We've attached a link to a feasibility template to get you started:
| property_development_feasibility.xlsx |
If you're planning to sell once completed, the lenders will want some certainty that you'll be able to sell the property(ies) when completed unless you have other income streams that can service the end level of debt. Normally, the lenders will require a certain proportion of the properties to be pre-sold "off the plan" before construction commences. There are certain qualifying conditions that apply to pre-sales - generally these are:
Ideally, to protect you, you'll get at least 100% of the total debt covered by qualifying pre-sales but if you're not quite there yet, then we can structure the deal to accommodate this as some lenders will accept 50% pre-sales for experienced developers with a proven track record.
Once we've established the project's feasibility and your plans for repayment or ongoing servicing of the facility, then we can get to work with the remaining information we need and start putting a detailed financial proposal together for you. There's normally a fee associated for this work which varies depending on the complexity of the project. For sure, the benefit you'll gain by dealing with an experienced commercial banker will not only maximise your chances of success but also obtain you the most competitive terms as we work with multiple lenders to find you the best deal.
So if you're ready to chat about your next project give us a call, we're happy to help.
- They need to be at arms length (i.e. not related or to an interested party)
- They need to be unconditional (other than the property is to be completed within the specification proposed)
- They must have paid a minimum 10% deposit
- They must have a sunset clause (typically 12 months beyond anticipated completion date)
- Overseas purchasers should make up no more than about 20% of pre-sales
Ideally, to protect you, you'll get at least 100% of the total debt covered by qualifying pre-sales but if you're not quite there yet, then we can structure the deal to accommodate this as some lenders will accept 50% pre-sales for experienced developers with a proven track record.
Once we've established the project's feasibility and your plans for repayment or ongoing servicing of the facility, then we can get to work with the remaining information we need and start putting a detailed financial proposal together for you. There's normally a fee associated for this work which varies depending on the complexity of the project. For sure, the benefit you'll gain by dealing with an experienced commercial banker will not only maximise your chances of success but also obtain you the most competitive terms as we work with multiple lenders to find you the best deal.
So if you're ready to chat about your next project give us a call, we're happy to help.
