In one paragraph
Land bank loans and construction finance fund adjacent, but distinct, stages of the same development journey. A land bank loan holds a site through the planning and approvals process, interest-capitalised against unapproved or pre-development value, with the loan repaid or refinanced once approvals are secured. Construction finance takes over once a project is ready to build, progress-drawn against the works and typically sized on the higher, as-complete value the approvals unlock. Most developers move from one to the other on the same project rather than choosing between them outright.
Side by side
|
Land bank loan |
Construction finance |
| Stage funded |
Holding the site pre-construction |
Building the project |
| Typical LVR/LTC |
Typically up to 60–70% of current value |
Typically up to 65–75% of as-complete value, or 80–90% of cost |
| Term |
Often 6 to 24 months |
Typically 9 months to 3 years |
| Income during term |
None; interest typically capitalised |
None until completion; progress-drawn |
| Key risk assessed |
Planning and approval timeline |
Build cost, builder performance, pre-sales |
| Best for |
Sites awaiting DA or rezoning |
Sites ready to build with approvals in hand |
When a land bank loan wins
A land bank loan wins for a site that is not yet ready to build — awaiting a development approval, a rezoning, or simply a market the developer is content to wait out before committing to construction. Because the facility is priced and structured around a holding period rather than a build program, it suits a developer taking a genuinely patient view of a site's timeline, with interest capitalised so the holding cost does not need to be serviced from other income during the wait.
When construction finance wins
Construction finance wins once approvals are in hand and a project is ready to build, since it is structured specifically for progressive drawdowns against verified work, at a loan-to-cost ratio that can extend meaningfully further than a land bank facility would support against unapproved land. Attempting to fund an actual build through a facility structured for holding land, rather than moving to a proper construction facility, generally leaves a developer under-funded against the real cash flow needs of a build program.
Developers moving from a land bank facility into construction finance should begin the construction finance conversation well before the development approval is actually granted, since a construction lender's own assessment, including feasibility review and lender matching, takes real time and starting only once approval lands can add weeks to a project that could otherwise transition seamlessly. Where the same lender or broker manages both facilities, the transition is generally smoother, since much of the site and developer information gathered for the land bank facility carries directly across to the construction application rather than needing to be assembled again from scratch. Land bank lenders will sometimes build a right of first refusal or a preferred referral arrangement into the original facility, giving the developer a head start on construction finance terms once approval is secured, though this is a matter for negotiation rather than a standard feature of every land bank facility. Developers should also budget for the possibility that market conditions, or the specific approval granted, might change the construction facility's terms from what was originally anticipated when the land bank loan was first arranged, since a facility agreed years in advance of construction cannot fully lock in tomorrow's construction lending terms today.
Can you use both
Using both in sequence is the normal path for a ground-up development — a land bank loan holds the site through approvals, then is refinanced into construction finance once the project is ready to build, ideally with the same lender or broker managing the transition so the refinance is efficient rather than starting from scratch. Developers should discuss this sequencing with their broker at the outset, since a land bank lender aware the loan will transition to construction finance can sometimes structure terms with that eventual refinance in mind.
Related
Land bank loans · Construction finance · Development approval · Englobo land