What do lenders need to assess a development loan application?
Applying for property development finance requires more documentation than a standard property loan. Lenders need to evaluate the viability of the proposed development, the capacity of the borrower to deliver the project, and the quality of the underlying security. Understanding what lenders require can help developers prepare a strong application and avoid delays in the approval process.
Step 1: Prepare your feasibility study
A detailed feasibility study is the foundation of any development loan application. It should set out the total project cost (including land, construction, holding costs, professional fees, and a contingency allowance), the expected end value upon completion, the anticipated profit margin, and the proposed timeline from start to completion. Lenders use the feasibility to assess whether the project is commercially sound and whether the proposed loan amount is appropriate relative to the project’s economics.
Step 2: Obtain an independent valuation
Lenders require an independent valuation prepared by a certified practising valuer. The valuation may be conducted on an “as is” basis (current market value of the site), an “as if complete” basis (expected value upon completion of the development), or both. The loan-to-value ratio is calculated using the independent valuation, which ensures that neither the borrower nor the lender sets the property value used in the assessment.
Step 3: Provide project documentation
In addition to the feasibility and valuation, lenders typically require copies of the development approval or planning permit, architectural plans and specifications, a fixed-price building contract or detailed cost estimate, evidence of the borrower’s equity contribution, and the borrower’s track record and experience in property development.
Step 4: Submit and engage with the lender
Once the application is submitted, the lender’s credit team will review the documentation, conduct their own due diligence, and may request additional information or clarification. For non-bank lenders like Granor Capital, borrowers typically have direct access to the people assessing the application, which allows for faster communication and a more transparent process.
Step 5: Loan approval and draw-down
Upon approval, the lender will issue a formal offer setting out the loan terms, conditions, and security requirements. Once accepted and all conditions are met, the loan is settled and funds become available for draw-down, typically in stages aligned with construction milestones.
Related resources from Granor Capital
Before applying, understand how loan-to-value ratios work and the role of independent valuations. Compare non-bank and bank lending to find the right fit. Start your application with Granor Capital.
This article is provided for general information purposes only and does not constitute financial advice.
