There has been a lot of press lately reporting banks relaxing their lending standards and policies, which may be true in the home lending sector but when it comes to development finance the banks have a much stricter requirement: your story, structure and how it is positioned with the bank.
As a Finance Broker I work with developers around Australia on projects of varying size from four lot splitters to 150 unit developments but what differentiates those who can secure the best funding terms (of up to 80-90% of total costs), reduced presale requirements (50-80% of debt cover) and on the most competitive rates/margins (sub 6% all in rates) is their narrative both individually and on the project.
Developers can be masters of their feasibility, planning approvals and cost control but where they seem to hit the mark is presenting the overall project as a cohesive well organised package in one go to the banks that lowers their risk profile as both a borrower and an overall project.
So I ask, do you have the right story? Some common questions the banks are asking more and more, and those which some developers may not necessarily have answers to are:
- Has the developer completed similar projects of type and size?
- Has the developer utilised a team of consultants appropriate for the development?
- Does the developer exhibit a knowledge of project risks and is prepared to acknowledge and mitigate those risks?
- Does the developer have additional security or collateral they can provide?
- Is there a fallback position or ability to service cost overruns?
Although finance is always in a developers mind, it seems to one of the last things they address in the overall process when it really should be one of the first to ensure a smooth finance approval, with the least amount of security possible.
So what’s your story and is it being presented in the best possible light?
Jayden Vecchio is the Managing Director of Discovery Finance Group, a speciality development finance firm based in Brisbane that can assist with development funding through the major banks, private and mezzanine funders.