Development finance is not a home loan with more zeros. Lenders assess it differently, think about risk differently, and can decline a project that looks perfectly profitable on paper if one piece of the puzzle is missing.
Most developers who get knocked back do not fail on the numbers. They fail because they did not understand what the lender was actually looking for, or they presented the application in the wrong order. A strong feasibility study, the right presales mix, a realistic construction budget and a track record that matches the project scale. All of it matters, and it all gets scrutinised.
This guide covers the five assessment factors lenders use, how they work together, and where projects typically fall over. If you already know your project stacks up and want to talk to a specialist, head to our development finance page or use the form below.
How lenders assess development projects
Development lenders do not assess your ability to make repayments the way a residential lender does. They assess whether the project itself can generate enough value to repay the loan. Your personal income matters, but it is secondary to the project's commercial viability.
In practice, the assessment process follows a predictable structure. Every lender weighs these five factors, although thresholds vary between banks, non-bank lenders and private funders.
Here is the part that catches people out: these are not scored independently. A weak result on one factor can sink the whole application, even if the other four are strong. A project with excellent margins but a first-time developer may still get declined. A developer with a solid track record but thin presales may get the same result. The whole package has to work.
Feasibility assessment
The feasibility study is the foundation of every development finance application. It answers one question: does this project make enough money to justify the risk?
Lenders will either use your feasibility study as a starting point (then run their own numbers over the top) or require you to use a format they specify. Either way, they are checking the same things.
The purchase price of the site, including stamp duty, legal fees and any holding costs incurred before construction starts. If the site is already owned, the lender uses market value at the time of application.
The fixed-price building contract or quantity surveyor estimate. Lenders prefer a fixed-price contract from a licensed builder. If you are using a QS estimate only, expect more scrutiny and possibly a lower LVR.
Architect, engineer, town planner, surveyor, project manager and quantity surveyor costs. These add up faster than most developers expect on their first project.
DA fees, construction certificate costs, council contributions (Section 7.11/7.12 in NSW, infrastructure charges in QLD), and any conditions of consent that carry a cost to satisfy.
Loan establishment fees, interest carry for the full construction period, line fees and any exit or discharge costs. Lenders capitalise interest during construction, so the total interest cost forms part of the feasibility.
Typically 5 to 10% of construction costs. The contingency buffer covers cost overruns, delays and unexpected site conditions. Lenders look unfavourably at feasibility studies that show zero contingency.
Agent commissions (typically 2 to 2.5% of sale price), marketing, styling and legal settlement costs. These are real costs that reduce the net revenue, and lenders include them.
GST applies to new residential sales. The margin scheme may reduce the GST payable on the land component. Lenders expect the feasibility to account for GST correctly.
The development margin is the difference between total development cost and total revenue (GRV), expressed as a percentage. Most lenders want to see a margin of at least 15 to 20%. Below that, the project is considered too sensitive to cost overruns or market shifts. A 10% margin might look fine on paper, but one delayed settlement or one builder variation eats it entirely.
Gross Realisation Value and loan-to-GRV ratio
Gross Realisation Value (GRV) is the total expected revenue from selling all completed dwellings or lots in the project. It is based on current market valuations, not what the developer hopes to achieve in 18 months.
The loan-to-GRV ratio is the lender's primary risk metric. It works like LVR for a home loan, but uses the project's end value instead of the purchase price.
| Lender type | Typical loan-to-GRV | What it means |
|---|---|---|
| Major bank | 60 to 65% | Lowest rates, strictest criteria. Usually requires strong presales, experienced developer and DA-approved project. |
| Second-tier bank | 65 to 70% | Slightly more flexible on presales and experience, but still requires a solid feasibility and builder. |
| Non-bank lender | 65 to 75% | More flexibility on presales and developer experience. Higher rates. Faster turnaround for some applications. |
| Private / mezzanine | 75 to 80%+ | Fills the gap between senior debt and equity. Significantly higher interest rates. Often used in combination with a first mortgage from another lender. |
One number to remember: a 65% loan-to-GRV on a project with a GRV of $3,200,000 gives you a maximum loan of $2,080,000. That $2,080,000 needs to cover land, construction and all project costs. Anything above that comes from developer equity, presale deposits or mezzanine finance.
The GRV is determined by a sworn valuation from a registered valuer, not the developer's sales estimate. Lenders will almost always commission their own valuation, and the result may be more conservative than the developer's projections. If the valuation comes in lower than expected, the maximum loan drops with it.
Presales requirements
Presales are contracts of sale exchanged before or during construction. They prove there is buyer demand for the finished product and reduce the lender's exit risk.
Most bank lenders want presales covering 100% of the debt, meaning the total value of exchanged contracts must equal or exceed the loan amount. Some require 100% of total development cost. Non-bank lenders may accept fewer presales or none at all, but the trade-off is higher interest rates and a lower loan-to-GRV ratio.
Accepted by most lenders
- Exchanged contracts with a 10% deposit held by the vendor's solicitor
- Arm's-length sales to unrelated buyers at market value
- Sales supported by independent valuations confirming the contract price
- Buyers who have demonstrated finance capacity or unconditional approval
Rejected or discounted
- Sales to related parties (family, associated entities, business partners)
- Expressions of interest or holding deposits without exchanged contracts
- Sales with sunset clauses that allow the buyer to walk away easily
- Bulk sales to a single investor at a discount to market value
Here is the practical challenge: presales require a DA-approved project, marketing materials, and often a display or off-the-plan sales campaign. All of that costs money before you have finance confirmed. Some developers fund the presales campaign from equity, then use the presales to support the loan application. Others work with a non-bank lender that will approve with fewer presales, then refinance to a cheaper facility once presales targets are met.
Developer experience and financial position
Lenders assess the developer, not just the project. A strong feasibility with the wrong person behind it is still a risk. The question they are really asking: has this developer successfully delivered a project of similar scale, type and complexity?
Track record
Lenders want to see completed projects, not just plans. Two or three successful completions of similar size and type carry far more weight than a portfolio of approvals that never got built. If your last project was a duplex and you are now applying for a 20-unit apartment block, expect the lender to question the step-up.
Builder relationship
A fixed-price contract with a licensed, financially stable builder gives the lender confidence. If the builder has limited capacity, a poor ASIC or credit record, or has not worked on a project of this size before, that becomes a risk factor. Some lenders maintain their own approved builder lists.
Financial position
The developer needs enough personal or corporate equity to cover the gap between the loan and total project cost. Lenders also check whether the developer can absorb cost overruns without the project stalling. Thin developer equity is one of the most common reasons for decline.
Project team
Architect, engineer, project manager, quantity surveyor. The quality and experience of the broader team is assessed alongside the developer. A first-time developer with a highly experienced project manager and QS can sometimes offset the inexperience gap, but it depends on the lender.
If you are a first-time developer, your options are narrower but not closed. Starting with a smaller project (duplex, triplex or small lot subdivision), bringing a larger equity contribution, or partnering with an experienced co-developer can all help. Some non-bank lenders will assess first-time developers on a case-by-case basis if the rest of the application is strong.
Cost-to-complete analysis
Cost-to-complete is not a one-off check at the start. It is an ongoing assessment that runs for the life of the loan.
At each construction drawdown, the lender (usually through a quantity surveyor) checks two things: that the work completed matches the funds already drawn, and that the remaining loan balance is enough to finish the project. If the numbers do not line up, drawdowns stop until the gap is resolved.
The lender appoints a QS to inspect the site and verify progress at each drawdown stage. The QS report confirms what work has been completed, what it cost, and what remains. This is non-negotiable for most lenders.
The builder submits a progress claim at each stage. The lender compares this against the QS report and the original budget. Discrepancies trigger further investigation before funds are released.
Any change to the original scope, price or timeline needs to be documented and approved. Uncontrolled variations are one of the fastest ways to blow a development budget. Lenders watch this closely.
If the contingency fund starts being used early in the build, that is a warning sign. Lenders track contingency drawdown against project completion percentage. Heavy early contingency use can trigger a review or require additional equity.
The developer's nightmare scenario: costs blow out mid-build, the contingency is exhausted, and the lender freezes drawdowns until additional equity is injected. The project stalls, holding costs accumulate, and the feasibility that looked comfortable at the start now shows a negative margin. This is exactly what the cost-to-complete process is designed to catch early.
Worked example: four-townhouse development
Here is a simplified reference example showing how these assessment factors come together for a small-scale townhouse project. All figures are approximate reference points only and do not represent a specific lender offer or guarantee.
Development costs
Revenue and assessment
Notice the margin in this example is only 6.25%. Most bank lenders would flag that as too thin. The project would need either higher end values, lower construction costs, or both before a bank would approve it. A non-bank lender might consider it if the developer has strong experience and the presales are locked in, but the rate would reflect the risk.
If the GRV was $3,600,000 instead (four townhouses at $900,000 each), the margin jumps to $600,000 or 16.7%, and the maximum loan at 65% becomes $2,340,000. That is a very different conversation with a lender. The difference between a viable project and a declined application often comes down to $50,000 to $100,000 per unit in end value.
Why development loan applications get declined
Most declines are predictable. The developer either did not understand the assessment criteria, applied to the wrong type of lender, or presented a project that did not meet the thresholds. Here are the most common reasons.
Development margin too thin
A margin below 15% leaves no room for cost overruns, market shifts or settlement delays. Lenders see thin margins as a sign the project is one problem away from a loss. If the feasibility only works when everything goes perfectly, the lender knows it will not.
Stress-test the feasibility with a 10% cost increase and a 5% GRV decrease before submitting.
Insufficient presales
Applying to a bank lender without presales covering at least 100% of the debt is a fast way to get declined. Even non-bank lenders will want to see evidence of buyer demand. Expressions of interest do not count.
Get presales underway early. If bank presales targets are not achievable, talk to a non-bank lender first.
Experience does not match the project
A developer who has completed two duplexes applying for a 12-unit apartment block is a mismatch. Lenders want to see a logical progression in project scale. Jumping three levels in one go makes them nervous, regardless of how good the numbers look.
Scale up gradually, or partner with someone who has done a project of this size before.
No DA or incomplete approvals
Most lenders will not issue formal approval until the Development Application is approved and any conditions of consent are either satisfied or clearly manageable. Applying with a DA still in council is premature for most bank lenders.
Get DA approval locked in before approaching bank lenders. Some non-bank lenders will consider DA-pending projects.
Unrealistic construction costs
A construction budget that does not match current market rates gets picked up immediately. If the QS estimate or builder quote looks too low, the lender will assume costs will blow out mid-build. Using a QS estimate from 12 months ago without updating it for current material and labour costs is a common error.
Use a current QS estimate or fixed-price builder contract. Update all cost inputs within 3 months of application.
Developer equity too low
If the loan-to-GRV does not cover total project costs, the developer needs to fund the gap. Lenders check that this equity is real, available and not borrowed from somewhere else. A developer who cannot demonstrate the equity will not get past credit.
Show clear evidence of equity: cash, unencumbered property, or a combination the lender can verify.
When to talk to a development finance specialist
Development finance is not something you figure out by reading one guide. Every project has different variables, and the difference between the right lender and the wrong one can be hundreds of thousands of dollars in costs, or the difference between an approval and a decline.
Consider speaking with a specialist if:
Getting the structure right at the start, choosing the right lender for the project type, and presenting the application in a way that matches what the credit team is looking for. That is what a development finance specialist does. It is not about finding the cheapest rate. It is about getting the project funded.
