Non-Bank Construction Finance

Most banks and other main stream financial institutions have stringent rules and requirements with regards to loan serviceability, borrower experience, pre-sales and Loan to Value Ratios (LVR), to name but a few. The minimum requirements would typically be the borrower’s up-to-date financials, at least 2 previous projects completed successfully by the borrower, at least 100% debt cover in pre-sales, and a maximum 65% Loan to Value limit.

There are however a substantial number of private lenders and mortgage trusts (typically referred to as Non-Banks) that are less stringent, these Non-Bank require minimum to no pre-sales (depending on the project size) and they will provide up to 75% Loan to Value limit, and up to 90% of Total Development Cost.

Non-Banks are “as a rule” more project focused, as opposed to banks that are more sponsor focused.

Non-Bank Construction Finance Benefits

So, where the major banks and mainstream lenders will not provide development finance until their pre-sales requirements have been satisfied, most Non-Banks will allow the developer to commence construction without a formal requirement for pre-sales, resulting in significant cost savings with regards to:

Interest costs and holding costs on the land
Pre-sale commissions and marketing expenses to achieve pre-sales
No discounts on sales values required to achieve pre-sale targets

In addition to the cost savings described above, starting the project earlier also has the following advantages:

Properties are easier to sell once construction has commenced, i.e. buyers like to see the product either finished or under construction
Selling the units at completion may result in a higher selling price in a rising market
Less time in the market means less market risk
Equity is released much earlier

While it is more expensive, it usually provides a significantly greater return to the developer within a shorter time.

Typical Lending Parameters for Non-Bank Construction Finance

Up to $10 Million

without pre-sales

Up to 75% LVR

90% LCR

Interest Rates from 9%

and Line Fees from 3%

Typical Contributions for Projects with Non-Bank Finance

Total Development Cost

15% Developer Equity

85% Non-Bank Debt

Non-Bank Construction Finance

Non-Bank Construction Finance

Non-Bank Construction Finance Benefits

Interest costs and holding costs on the land

Pre-sale commissions and marketing expenses to achieve pre-sales

No discounts on sales values required to achieve pre-sale targets

Properties are easier to sell once construction has commenced, i.e. buyers like to see the product either finished or under construction

Selling the units at completion may result in a higher selling price in a rising market

Less time in the market means less market risk

Equity is released much earlier

Typical Lending Parameters for Non-Bank Construction Finance

Typical Contributions for Projects with Non-Bank Finance

Total Development Cost

Get in Contact with your Construction and Commercial Property Finance Expert!

SITE MAP

GET IN TOUCH

NEWSLETTER