How will you fund your next property development project? Whether you’re looking to finance a site acquisition, construction & development or residual stock, there are a wide range of options available in the market today, and each has pros and cons with regard to response times, rates and fees, preconditions and other finance terms.
To help we’ve highlighted some of the pros and cons to the various lenders and how this can affect your project.
Banks
Banks, credit unions and building societies can accept customers’ deposits and use them as capital to finance lending. This cheap source of funding enables them to offer borrowers some of the more competitive interest rates in the market.
There are over 100 such authorised deposit-taking institutions in Australia. They provide a wide range of commercial property finance products, as well as teams of bankers to explain to customers how they can qualify for a loan.
These traditional lenders are supervised by the Australian Prudential Regulation Authority (APRA). Because they are so tightly regulated, they tend to be slow and risk-averse when assessing finance requests.
This means they won’t entertain proposals that fall outside their strict guidelines and they are conservative in their lending parameters, offering lower loan-to-value ratios (LVRs) and more restrictive loan conditions than other financiers.
Non-Banks
A non-bank lender is a finance provider who doesn’t hold a banking licence. As they cannot take deposits from customers, they source their capital in other ways. Some raise money from wholesale funders, while others such as property syndicates are groups of investors who pool their capital for investment and lending.
Non-bank lenders’ interest rates and fees are usually a few percentage points higher than those of the banks. But because they are more agile and flexible than the major institutions, they can tailor loan terms to suit individual borrowers, accept higher LVRs and provide much faster approvals.
They also offer innovative products specifically designed for property developers, such as zero-presales construction finance, and provide low-doc loans (which require less verification and paperwork) because they are more focused on the merits of a project and proposal than on a borrower’s personal finances.
Non-bank lenders are not subject to APRA governance like the banks, but they do operate under the strict rules of ASIC (the Australian Securities and Investment Commission), which ensures that all financial institutions operate “efficiently, honestly and fairly’’.
Private lenders and investors
Financiers such as high-net-worth private individuals or family offices manage their own capital, so they are not answerable to shareholders or external investors.
This gives them the freedom to lend or invest as they choose, and they may agree to back projects that cannot secure funding from financial institutions. However these investors expect a high rate of return to compensate them for their risk, and they can be a relatively expensive source of property development finance.
Some private financiers may be unyielding when it comes to enforcing the terms of loan agreements with borrowers. They are not obliged to act as reasonably as financial institutions, which have reputations to uphold and governance codes they must comply with, so private lenders may be quicker to trigger default provisions that allow them to charge penalty rates and fees.
The right choice for your next project
If you’re unsure how to go about negotiating the best possible funding deal for your next project, then speak to Development Finance Partners - that’s our area of expertise.
We’ve been in business for over a decade and have built strong working relationships with hundreds of banks, non-bank lenders and private investors, many of whom do not take applications directly from borrowers. We know who is in the market for what type of project and developer on any given day, and we understand the criteria they focus on when making investment decisions.
With over $3 billion in funding solutions settled nationwide, we pride ourselves on ensuring the best possible outcomes for the developers we partner with. We can help you to identify your funding options and to tailor your finance proposals to maximise your chances of securing the best possible terms.
Our specialities include construction & development loans, land bank finance, mezzanine finance and residual stock loans. Beyond structuring finance for developers, we provide a complete end-to-end solution for our clients including expertise in property law and strategic advice, and assistance with project management.
To learn more, book a discovery call with the DFP finance team.