By: Adam Ioannidis

Whilst a construction loan from the bank is sufficient for your average residential renovation or construction project, more serious developments may require a smarter and more exact approach. Development finance is a specialised loan that will help finance your large-scale residential or commercial development project and is designed to meet all the requirements. Our construction cost consultants have had plenty of experience in dealing with development finance and are here to introduce you to the loan-type, its encompassing elements as well as some of the risks.


The barebones of development finance

Banks will not always be able to help you with loans — for various reasons they may see the loan as a risk, forcing you to look elsewhere. Luckily, there are dedicated firms that specialise in loans for construction developments — whether it is constructing a new office building, converting homes into an apartment complex or even an extensive renovation of a luxury property.

The perks of development finance

The obvious perk of a development finance loan is that it allows for a large sum of money to be borrowed. This can be highly beneficial should your project go smoothly — especially if the end goal is to make a profit from said development or renovation. Another fact to keep in mind is that many development finance lenders will specialise in the area or at the very least have a dedicated team that handles this type of loan, meaning you should be getting the best service from an experienced group.

Another attractive aspect of development finance is the sparser eligibility criteria compared to borrowing from the bank. Whilst lenders in this instance still will not hand the loans out to just anyone, with the correct documentation (something our construction cost consultants there is a higher chance of being approved in comparison. 

5 key aspects to consider when considering development finance

Whilst there are some attractive aspects and benefits to development finance, there are some important aspects you should consider when looking for a suitable financier and borrowing. 

1.     LVR (loan-value-ratio)

The loan-to-value ratio is put in place to secure the lender’s investment; it is how large of a deposit you will need before borrowing, this number is determined based on the value of your property. For example, the higher the value, the lower the LVR may be, requiring a larger deposit from you as a developer. If you have a larger amount than what is required for the minimum deposit, then it could improve your interest rate.

 

2.     Interest rate

Development finance interest rates vary between lenders with both fixed and variable rates available, so like with most loans you should do your research. As mentioned above, the LVR can have an impact on the interest rate of the loan and give you leverage when negotiating interest rates.

 

3.     Fees

In addition to the interest rates, there will are supplementary fees for development finance loans, such as the establishment fee — which can be calculated based on the overall loan amount. Be sure to enquire about all the associated fees before borrowing from a lender to avoid hidden surprises.

 

4.     Experience and track record

When you hire a concreter to pave your driveway, you want to make sure they have done similar work as well as have a good reputation and adequate experience. The same applies when looking for development finance lenders. Never be afraid to ask questions; use your network to see if they know any reputable lenders or ask our construction cost consultants for some recommendations.

 

5.     Contractual terms

Elements like the loan terms, interest rate and repayment periods are a few of the points you should pay attention to when combing a development finance contract. Our consultants can help you ensure that the terms are suitable for your requirements.

Hiring a construction cost consultant in Australia

Borrowing from a development finance lender may seem like a simple process on the surface but you are going to want to ensure that all your affairs are in order, our trained cost consultants can help you do that. With over a decade of experience handling projects ranging from $60,000 – $14,000,000, our qualified and trusted construction cost consultants can ensure all your documentation is in order and your estimates are accurate before approaching a development finance lender.

Our service is able to be conducted remotely no matter where you are in Australia, so please do not hesitate to give us a call today on 0413 953 869 or contact us via our online enquiry page.

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