Direct answer
Construction finance funds the building of residential, commercial or mixed-use projects through progress-drawn advances tied to works completed, from acquiring the site through to completed stock. In Australia it is arranged through banks, private lenders and specialist funds, secured by a first mortgage over the site and a general security agreement, typically running nine months to three years with funding drawn as construction milestones are met.
Who uses it and why
Construction finance is reached for by developers and builders bringing a project from land to completed asset, whether that project is a single residential build, a townhouse or duplex development, or a larger commercial or mixed-use scheme. The financing challenge is different from a standard purchase loan: costs are incurred progressively as the build proceeds, and the lender's exposure changes shape at every stage, from a bare site through to a partially built structure and, eventually, completed and saleable or leasable stock.
A developer needs a lender who understands construction risk specifically — cost overruns, builder default, delays, and the difference between an as-is site value and an as-complete valuation — rather than one assessing the project as if it were a static asset. Pre-sales, where they exist, materially change the risk profile and the lender panel available; a project with limited or no pre-sales is still financeable but generally attracts more conservative terms and a narrower panel prepared to carry that additional risk. Typical borrowers are experienced developers and builders undertaking land subdivision, townhouse and duplex projects, residential builds, and commercial or mixed-use developments.
Every project also carries its own sub-type considerations that shape which lenders are the right fit: a land subdivision is assessed differently to a residual stock position on a nearly finished project, and a townhouse or duplex scheme sits between the two in complexity. Matching the right lender to the right stage and asset type, rather than approaching whichever lender is most familiar, is often what separates a smoothly funded project from a stalled one.
What lenders look at
The feasibility is examined as closely as the security: total development cost, the as-complete valuation, the margin between the two, and whether the numbers still work if costs run over or the market softens before completion. Lenders lend against both a loan-to-value ratio on the as-complete value, typically up to 65–75%, and a loan-to-cost ratio, generally extending further, up to around 80–90% of total project cost, whichever is the binding constraint on a given file.
The builder and the build contract are scrutinised directly: is the builder licensed and experienced at this scale, is the contract a fixed-price arrangement, and what happens if the builder fails to perform. Banks generally require a strong pre-sale position, full financial disclosure and an established developer track record, and move at a correspondingly deliberate pace given the size and complexity of these facilities. Private lenders and specialist funds are typically more flexible on pre-sales and track record, assessing the project on its feasibility and the security available, including the site, a general security agreement over the development entity, and any pre-sale contracts in place, and can move faster once a complete feasibility package is submitted.
Documentation is generally full-doc or alt-doc given the complexity and duration of these facilities — quantity surveyor reports, a build contract, council approvals and a detailed cost breakdown are all standard inputs regardless of which lender type is the best fit. Credit history is read in the context of the developer's track record and the strength of the feasibility; minor, explained defaults do not typically exclude an otherwise strong project, though this is a more conservative-tolerance product than the shorter-dated, property-secured facilities in the category.
Typical terms
|
|
| Size |
$500,000 to $100m+, subject to lender assessment |
| LVR |
Typically up to 65–75% of as-complete value, or up to 80–90% of total cost |
| Term |
Nine months to three years, matched to the build and sell-down period |
| Speed |
Indicative approval in 21–56 business days from a complete feasibility |
| Security |
First mortgage over the site, a GSA, and pre-sale contracts where available |
| Pricing |
Priced on risk and security; indicative range on enquiry |
Structures we see most
Residential construction loan. Funds a single dwelling or a small number of lots, progress-drawn against a fixed-price build contract, typically the most straightforward construction structure to place.
Townhouse and duplex development finance. Sized for medium-density projects of several dwellings, assessed on the sell-down plan for completed stock as much as the build itself, with pre-sales materially improving the terms available.
Land and early works finance. Funds site acquisition and early civil or subdivision works ahead of vertical construction, often the first facility in a longer development, subsequently refinanced into full construction finance once building begins.
Commercial and mixed-use construction. Funds larger office, industrial, retail or mixed-use projects, generally requiring a more developed feasibility, a stronger pre-lease or pre-sale position, and a panel weighted toward specialist funds and banks with development lending capability.
Residual stock finance. Funds completed but unsold stock at the end of a construction facility, giving the developer time to sell down at full market value rather than accepting a discounted bulk sale to repay the construction lender on the original timetable.
Costs and how we're paid
Pricing on construction finance reflects the project's risk profile, the pre-sale position, the loan-to-cost and loan-to-value ratios and the lender type, and is quoted on enquiry once a lender has reviewed the feasibility — no flat rate applies across the product. Facilities typically carry an establishment fee, a line fee during the drawdown period, and quantity surveyor and monitoring costs through construction; all costs are set out in the loan offer before a borrower commits.
Solara is remunerated by the lender, the borrower, or both, depending on structure, which may include a commission from the lender and/or a broker fee agreed with the borrower. Any commission or fee is disclosed in writing before an application proceeds.
Process and timing
- Initial scoping call — typically same day. We confirm the project, the build stage, pre-sale position, cost breakdown and developer experience.
- Feasibility and document collection — typically 5–10 business days. Plans, permits, the build contract, quantity surveyor input, financials and pre-sale contracts as applicable.
- Lender matching and submission — typically 3–5 business days. We place the file with the banks, private lenders and specialist funds whose appetite matches the project size, pre-sale position and location.
- Approval and offer — typically 10–30 business days, reflecting the complexity of assessing a construction facility.
- Documentation and first drawdown — typically 5–10 business days once terms are accepted, with subsequent drawdowns released against progress certificates through the build.
Frequently asked
What is construction finance?
It is progress-drawn funding for a building project, released in stages as work is completed and verified, rather than as a single upfront advance. It covers residential, commercial and mixed-use developments from site acquisition through to completed stock.
Do I need pre-sales to get construction finance?
Not always. Pre-sales materially strengthen a file and widen the panel of lenders willing to fund it, but construction finance without pre-sales is available, typically through private lenders and specialist funds and on more conservative terms than a well pre-sold project would attract.
How does construction finance get drawn down?
In stages, against progress certificates confirming work completed to each milestone — typically slab, frame, lock-up and completion for a residential build — verified by a quantity surveyor before each drawdown is released.
What is the difference between loan-to-value and loan-to-cost ratios?
Loan-to-value measures the facility against the as-complete valuation of the finished project; loan-to-cost measures it against the total cost to build. Lenders assess both and lend to whichever is the more conservative constraint for a given project.
Can I get construction finance as a first-time developer?
It is harder but not impossible — most lenders want to see a proven track record or an experienced builder and project team involved, and a first-time developer will typically need a stronger pre-sale position or additional security to offset the lack of history.
What happens if the build goes over budget?
Facilities are generally structured with a cost contingency, and lenders will want to understand any overrun promptly; depending on the shortfall, this may be met from the contingency, additional borrower equity, or in some cases a facility variation.
How long does construction finance approval take?
Indicative approval runs from around three to eight weeks from a complete feasibility submission, reflecting the depth of assessment a construction facility requires compared with a standard property loan.
What happens to unsold stock once construction finishes?
Where stock remains unsold at completion, a residual stock facility can extend the timeline, giving the developer room to sell at full market value rather than being forced into a rapid, discounted sell-down to meet the original construction facility's maturity.
Related products
Land bank loans — the better fit for holding a site through the approvals process, ahead of construction finance being drawn once the project is ready to build.
Mezzanine & preferred equity — worth considering directly when senior construction debt alone does not cover the full capital stack and additional subordinated funding is needed to bridge the gap.
Commercial property loans — the closer match once a project is complete and income-producing, as the long-term facility construction finance is typically refinanced into.