Construction Finance
How Are Construction Loans Structured?
5 min read- Finance Guide
- Updated 2026
Quick answer
Typical structure
5 6 stages
from deposit to completion
- Repayments during build Usually interest only
- Funds released As progress payments
- Loan conversion After completion
1300 421 044
1300 421 044
Detailed explanation
Construction loan structure is built around risk control. The lender usually separates the facility into land debt, undrawn construction funds, progress payments, interest during the build, and the repayment structure that applies after completion. This means the loan is not just one amount. It is a controlled funding line that is drawn and monitored from start to finish.
Typical structure of the facility
Construction loans are usually divided into controlled components
- 01Land or equity component
- 02Approved build budget
- 03Progress payment stages
- 04Interest only build phase
- 05Final inspection and release
- 06Conversion after completion
In a typical structure:
Builder submits invoice or draw claim- Lender confirms stage completion
- Undrawn funds remain unavailable until needed
- Borrower usually pays interest only on drawn funds
What sits inside the structure
Most construction facilities include:
-
a land loan or existing land equity position
-
an approved construction amount tied to a build contract
-
progress draw controls linked to construction milestones
-
interest charged on funds used rather than the full facility
-
a final conversion into the selected end loan structure after completion
Deposite Range
-
Low deposit
5%
-
Typical deposit
10-15%
-
Strong position
20%+
How the structure is approved
Lenders review
land value or existing equity position- fixed price building contract or accepted cost schedule
- builder credentials, licence and insurance
- approved plans and specifications
- on completion valuation
- borrower income, debts and serviceability
- construction timeline and progress payment schedule
Typical structure points
-
Initial advance
Land or refinance debt
-
Construction funds
Held undrawn
-
Progress releases
At each stage
-
End structure
After completion
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Common problems
Construction loan structure can work very well when the facility matches the project. Problems usually appear when the contract, valuation, draw schedule or end debt structure do not line up cleanly.
End value does not support the structure
If the on completion valuation comes in lower than expected, the approved build structure may not support the full amount needed.
Possible solutions include:
contribute more cash or equity- reduce build scope or costs
- change lender or structure if policy allows
- rework the end debt amount
Progress payment structure does not fit
Some lenders only accept certain contract forms, payment timing, builder types or stage formats.
Possible solutions include:
- adjust the payment schedule
- provide missing builder and contract documents
- use a lender with broader construction policy
- amend the structure before signing contracts
End loan strategy is unclear
Some borrowers focus on the build phase but not what happens when the final draw is made and full repayments begin.
Possible solutions include:
- model post completion repayments early
- choose the intended end loan structure upfront
- keep a buffer for overruns and interest
- plan refinance options after completion if needed
Steps to get Finance
Step
01
Confirm the land value, purchase debt or existing equity base.
Step
02
Finalise plans, specifications and the build contract.
Step
03
Submit the full application with costs, contract and borrower documents.
Step
04
The lender assesses on completion value, LVR and serviceability.
Step
05
The facility is approved with a staged draw schedule.
Step
06
Funds are released in stages, then the loan converts after completion.
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Property development finance can vary significantly depending on the project size, location, approvals, and the developer's experience.
A specialist can review your project and help determine which lenders may be able to fund it.
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