Development finance

What does development finance cover?

A development loan funds two things: the site and the build. Some developers already own the land and only need construction funding; others need to buy the site first, then fund the works. Either way, the loan is drawn in stages as the project progresses, and repaid when the finished product is sold or refinanced.

On this directory, we separate development finance (a project built to sell or hold) from construction finance (a build for the business’s own use, such as new premises). The mechanics overlap, but the lender’s focus differs.

The layers of a development funding stack

Layer	What it does
Developer equity	Your own cash or equity in other property — the first money in
Senior debt	The main construction loan, first ranking over the site
Mezzanine	Second-ranking money that fills a gap between senior debt and equity
Residual stock loan	After completion, refinances unsold stock to give you time to sell

Not every project uses every layer. Smaller projects often need only senior debt plus equity. Larger or tighter projects might add mezzanine. Most projects benefit from knowing a residual stock option exists, even if they never use it.

What do lenders want to see?

1. A credible feasibility with realistic costs, a contingency and conservative sale prices.
2. Experience — yours, your builder’s and your project team’s.
3. Approvals — development approval and building permits, or a clear path to them.
4. A fixed-price building contract with a reputable builder, if possible.
5. Presales or a sales strategy that supports the end value.
6. Your contribution — how much equity you’re putting in.

First-time developers aren’t excluded, but expect lenders to lean harder on the builder’s track record and the strength of the numbers.

How does drawdown work?

Funds are released in progress payments as each stage is completed: slab, frame, lock-up, fixing and practical completion. A quantity surveyor usually checks each stage before money is released. Interest is commonly capitalised during construction, so there are no monthly repayments while the project earns nothing.

What if I need land first?

If you’re still securing a site, the land loans page covers buying and holding land while approvals are obtained. A bridging loan can also help when settlement on a site comes before the construction facility is ready.

You can see every property-secured option side by side in the Loan Finder, or tell us about the project to get a specialist’s view.

An illustrative example

A builder-developer has a site approved for four townhouses, owned outright. A senior construction loan funds the build, drawn in stages. Two townhouses presell; once complete, the rest are refinanced with a residual stock loan while they sell. (Illustrative only.)

What else is development finance called?

Lenders, accountants and search engines don’t all use the same words. You’ll also see this entry described as Property development loan, Mezzanine finance and Residual stock loan. In our A–Z index every one of those names points back to this page, so whichever term you searched, you’ve landed on the same thing. If a lender uses a name you don’t recognise, ask them to describe how the security, the term and the repayments work; that tells you far more than the label.

Where does it sit in the directory?

This entry lives on the property-secured shelf. It’s most often used for property and projects, and the security usually involved is residential or commercial property. It usually involves a little more paperwork and assessment than the quickest options, so start early. Its closest neighbours are:

• First mortgage business loans — The lender holds first place on title — usually the largest amounts and longest terms.
• Caveat loans — Short-term money secured by a caveat lodged on the title instead of a full mortgage.
• Bridging loans — Covers the gap between buying one thing and selling or refinancing another.
• Private business loans — Non-bank lenders who assess the deal and the security, not just the credit score.

To compare all of them at once, filter the Loan Finder by purpose and security.

Common mistakes to avoid

• Guessing the property value. Use a recent appraisal or comparable sales rather than the figure you’d like it to be; an inflated estimate only creates a gap later.
• Forgetting what’s already on the title. Every existing mortgage, caveat or private loan affects how much room is left, so list them all upfront.
• Leaving the exit vague. With property-backed lending, the plan for repayment carries as much weight as the security itself. Write it down in two sentences.
• Not involving co-owners early. Everyone on the title will need to sign, and a late surprise can stall settlement for weeks.
• Borrowing the bare minimum. Fees, adjustments and small overruns add up; a modest margin is far cheaper than a second loan.

What should I ask before signing up for development finance?

A short list of questions saves a lot of regret. Put these to any lender or specialist before you commit:

1. What is the total repayable, in dollars? Ask for one figure covering interest over the full term plus establishment, legal, valuation and any line or discharge fees.
2. How is the property value being assessed? Some lenders order a formal valuation, others rely on desktop data or agent evidence. Knowing which helps you plan timing.
3. What happens if my exit takes longer? Get extension terms in writing before you sign, including any default or holding charges.
4. Can interest be prepaid or capitalised? For short terms this can protect cash flow, but it changes what’s owed at the end.
5. Who needs to sign? Confirm early whether every owner, director and spouse on title must sign or seek independent advice.

If an answer is vague, ask again or ask for it in writing. Good lenders are happy to explain their terms clearly.

Get your project in front of the right funder

Development finance is all about fit: the right lender for your project size, experience and stage. A quick enquiry is the starting point; there’s no credit check, and it isn’t spread across a dozen funders. One specialist reviews it and calls you.

Please be specific about the site, approvals, costs, expected end values and your contribution. Better numbers make for better matches. Start your enquiry.