Construction finance feasibility — what private lenders actually look at

Construction finance is the most complex product in property-secured lending. It involves progressive funding against a project that does not yet exist, security that changes in value as work progresses, and a web of stakeholders — builders, quantity surveyors, certifiers, and councils — who all need to align. For Pty Ltd borrowers and developers seeking construction finance through private lenders, the feasibility assessment is the gateway to funding. Understanding what private lenders actually look at — and how their approach differs from a bank — is essential for getting a deal across the line.

How private construction feasibility differs from bank assessment

Banks assess construction feasibility through a highly structured framework. They typically require presales covering 80 to 100 per cent of the total development cost, a quantity surveyor report from a panel-approved QS firm, a fixed-price building contract, and evidence that the developer can fund cost overruns from their own resources. The bank's primary concern is debt coverage: can the project's committed revenue service and repay the debt?

Private lenders approach feasibility differently. Their primary focus is the gross realisation value (GRV) of the completed project relative to the total development cost (TDC). If the margin between GRV and TDC is sufficient, and the developer has a credible track record, the project can proceed without presales. This is a fundamentally different risk lens — one focused on the asset's end value rather than pre-committed revenue.

GRV: the number that matters most

Gross realisation value is the estimated total value of the completed project when all lots or units are sold at market value. For a townhouse development, it is the sum of the individual sale prices. For a commercial build, it is the value of the completed asset based on capitalised rental income or comparable sales.

Private lenders typically want to see a GRV that provides a meaningful buffer above the total development cost. The size of that buffer varies depending on the project type, location, and the lender's risk appetite, but the principle is consistent: the completed project must be worth significantly more than it costs to build.

The GRV assessment is usually supported by an independent valuation from a registered valuer, which estimates the end value based on comparable evidence. This valuation is one of the first documents a private lender will want to see.

No presale requirement — but not no conditions

The absence of a presale requirement does not mean the lender is ignoring sales risk. It means the lender is accepting that risk in exchange for a higher margin of safety on the GRV, a shorter project timeline, or a developer with a strong track record of completing and selling similar projects.

For many small-to-medium developers, the presale requirement is the single biggest obstacle to securing bank construction finance. Presales take time, they reduce pricing flexibility, and in some markets they are simply not achievable at the early stages of a project. Private construction finance removes that constraint, enabling developers to commence construction and sell completed stock at market prices rather than discounted off-the-plan prices.

Builder track record and capacity

Private lenders pay close attention to who is building the project. The builder's track record — projects completed, project size and type, financial stability, and any history of disputes or insolvency — is a critical part of the assessment. A strong builder mitigates construction risk; a weak builder amplifies it.

Lenders will typically want to see the builder's licence and insurance certificates, evidence of completed projects of similar scale, a current financial capacity statement, and references or a track record that can be independently verified. If the builder is new to the developer, the lender may request additional comfort — such as a performance bond or a retention arrangement.

The role of the quantity surveyor

A quantity surveyor (QS) is the lender's eyes on the ground during construction. The QS performs two key functions: a pre-construction cost assessment (verifying that the builder's price is reasonable relative to the scope of work) and progressive draw-down certifications (confirming that the work claimed by the builder has actually been completed to an acceptable standard before each progress payment is released).

The QS report is not optional in private construction lending. It is a foundational document that the lender relies on to manage construction risk. Borrowers should engage a reputable QS early in the process — it accelerates the lender's assessment and demonstrates project readiness.

For a broader overview of the process from enquiry to drawdown, see our how it works page.

DA, CC, and construction readiness

Before a private lender will commit to a construction facility, the project must have its planning approvals in place. At a minimum, this means a Development Approval (DA) from the relevant local council. In most cases, the lender will also require a Construction Certificate (CC), which confirms that the detailed construction plans comply with the Building Code of Australia and can be issued by either the council or a private certifier.

Some lenders will provide a conditional approval at DA stage, with drawdown subject to CC being obtained. Others require CC to be in hand before they will issue a formal offer. The stage of planning approval is one of the first questions a lender will ask, and having both DA and CC in place significantly accelerates the process.

The builder's tripartite agreement

A tripartite agreement (sometimes called a tripartite deed) is a three-way agreement between the borrower, the builder, and the lender. It gives the lender the right to step in and complete the project using the same builder — or appoint a replacement builder — if the borrower defaults on the loan.

This document protects the lender's security. Without it, a default could leave a partially completed building with no clear path to completion, which destroys the asset's value. The tripartite agreement is standard in construction lending, and any experienced builder will be familiar with the requirement.

Progressive drawdown mechanics

Unlike a standard property loan where the full amount is advanced at settlement, construction finance is drawn progressively as work is completed. The typical structure involves an initial drawdown at settlement (often to cover land acquisition or deposit), followed by drawdowns at defined construction milestones — slab, frame, lock-up, fix, and completion.

Before each drawdown, the QS inspects the site and certifies that the work corresponding to that stage has been completed. The lender then releases the next tranche of funding. This mechanism ensures that the lender's exposure at any point in time is broadly aligned with the value of the work completed.

Borrowers should plan for this staged funding approach when managing builder payment schedules. Misalignment between the builder's payment claims and the QS-certified drawdown stages is one of the most common sources of friction in construction projects.

Common mistakes that derail feasibility

Across the hundreds of construction transactions we have seen, several recurring mistakes delay or prevent funding. Underestimating the total development cost — particularly soft costs like council contributions, consultants, and holding costs — is the most common. Overestimating the GRV based on aspirational rather than comparable evidence is a close second. Engaging a builder without verifying their financial capacity or licence status creates problems that surface late in the process. And failing to obtain planning approvals before approaching a lender wastes time for everyone involved.

To see how other developers have navigated these challenges, explore our deal scenarios, which include construction finance examples with real-world structures.

Getting your construction deal assessed

Private Credit Loans arranges construction finance for Pty Ltd borrowers and developers through our panel of private lenders. We source facilities for projects ranging from duplex builds to multi-dwelling townhouse developments — with or without presales. If your project has DA approval and a credible feasibility, we encourage you to review our construction finance product and submit your scenario for a preliminary assessment.