Questions you need to ask when looking for development funding

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Australia Day is upon us, signifying the property industry’s return from summer holidays.

The major focus for developers this year will be on obtaining construction funding as the pull back by the banks continues.

Traditional bank clients will have to embrace alternate funding sources. The APRA imposed requirement for 100% plus debt coverage from presales either cannot be achieved in the current sales market or, if they can be achieved, are unfeasible due to cost.

4% plus upfront on sales commission equates to close to 7% of additional interest!

This will be a new experience for many traditionally bank funded developers.

To assist, ten questions you should ask when sourcing funding:

  1. What is the source of the monies to be advanced?
  2. How long has the lender been in business?
  3. What is the experience of the funder in lending for your type of project?
  4. Are you being set up to fail?
  5. Is the advertised interest rate really the interest rate?
  6. How committed is the funder to the completion of the project?
  7. What are the resources and experience of the funder to complete the project should any issues arise?
  8. What type of Australian Financial Services License (if any) does the funder hold?
  9. Is the funder ready for project bank accounts, should they eventuate?
  10. Does the funder have a panel of valuers and quantity surveyors? If so, do they hold a library of valuations and cost to build?

Answers to these questions will assist developers in understanding some of the risks, and in highlighting what value the right funder can provide to your project.

It is not intended to be an exhaustive list. If you want to know more from someone who has been funding projects for 25 years, then please give me a call.

Richard Woodhead – Managing Director

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