The wrong comparison costs more than the rate
If you compare development loans on headline price first, you can pick the wrong lender. For land, construction and cost-overrun funding, the expensive mistake is usually hidden in drawdown rules, valuation treatment, contingency requirements and exit assumptions.
That is my position, and I will defend it plainly: a slightly dearer facility with workable QS sign-offs, realistic presales treatment and a genuine overrun structure is often cheaper than a nominally cheaper loan that stalls the project. Delay burns cash. So does being forced into an emergency top-up halfway through the build.
For Australian builders and developers seeking business or investment funding, Shane St Reynolds works through Poseidon Finance on facilities from AUD 5,000 to AUD 7.5 million, subject to lender assessment, with fast indicative approval and online application.
General information only. Business and investment purposes only, subject to lender assessment.
The five costs most borrowers underweight
1) Underrun and overrun risk
Ask whether the lender will fund cost overruns at all, and if so, on what evidence. The document that matters here is usually the quantity surveyor report. Many non-bank construction lenders want an independent QS to verify total development cost, stage progress and remaining-to-complete figures before drawdowns.
The concrete question: What happens if the build cost increases after the first draw?
If the answer is vague, you have a problem. Some lenders will require the borrower to inject all additional equity before any further advance. Others may consider a variation, but only after a refreshed valuation and QS review. Both events cost time and money.
Common mistake: treating contingency as optional because the builder's fixed-price contract looks clean. It is not enough. Variations, civil works surprises, authority conditions and delayed trades still happen.
2) Time cost from drawdown mechanics
Construction facilities are not one cheque. They are typically progressive draw loans. That means every delay in inspections, invoices, certificates or QS sign-off can stop the next release.
Ask for the actual drawdown process in writing:
- Who approves each claim: lender, valuer, QS or all three?
- How often can claims be made?
- What invoices, photographs, statutory declarations or progress certificates are required?
- Is GST funded or must it be carried until BAS recovery?
- How long from complete submission to release of funds?
Counter-intuitive point: a lender with stricter reporting can still be the better choice if the process is regular and fast. What kills projects is not scrutiny; it is inconsistent scrutiny.
3) Valuation methodology and GST treatment
Developers too often say, “The site stacks up,” without asking how the lender's valuer will assess it. For development finance, the valuer may look at land value, as-if-complete value, gross realisation value, end sales evidence and total development cost. If your feasibility works only on your own sale assumptions, but not on a conservative valuation, the deal may not fund.
Ask these exact questions:
- Is lending based on land value, total development cost, or gross realisation value?
- Are presales required, and how are they shaded?
- Is GST included or excluded in the lender's gearing test?
- Will a fresh valuation be required if there is a material delay or variation?
GST treatment matters because feasibility spreadsheets often mix GST-inclusive build costs with GST-exclusive end values and create false comfort.
4) Exit cost if the lender's term is too short
The exit strategy is not a line in the file. It is the file. If the plan is to sell stock, ask what happens if settlements drift. If the exit is refinance to residual stock or a term facility, check whether that takeout lender is realistic now, not later.
In Australia, settlement delays can flow from council sign-off, titles, services, defects, weather or slower sales absorption. If your term has no room for that, your cheapest quote can become your most expensive problem.
Ask:
“What is the initial term, what extension rights exist, what conditions trigger default interest or enforcement costs, and what evidence of exit do you need before formal approval?”
Do not accept a hand-wave here. Get the answer against the proposed facility structure.
5) Fees outside the facility line item
Compare the full transaction cost, not just the lender line. Development deals can involve valuation fees, QS fees, legal fees, establishment fees, line fees, redraw or variation fees, and sometimes fees tied to extensions or re-documentation. If there is a second mortgage or mezzanine piece, the intercreditor position matters too.
What to compare is not “What is the fee?” but When is it payable, refundable or capitalised?
What lenders actually assess on development and overrun funding
Most lenders are assessing four things at once:
- The security. Site quality, title, location, demand, valuer comfort and saleability.
- The numbers. Total development cost, borrower equity, contingency, presales, debt coverage and exit viability.
- The delivery team. Builder capability, licence status where relevant, consultants, QS, and whether the applicant has completed comparable projects.
- The paper trail. DA or approval status, plans, contract, feasibility, entity structure, financials, ATO position and bank statements.
If there is ATO debt in the background, expect questions. The ATO can disclose tax debt information to registered credit reporting bureaus in some circumstances for businesses that meet the reporting criteria. Even where that is not the issue, unmanaged ATO arrears can affect serviceability, cash flow and lender confidence. Paying out ATO debt as part of a broader business funding solution may be possible in some cases, but it must make sense on exit.
A quick test before you lodge anything
Use this decision test before you spend money on full assessment.
- Check your approvals status. Is the project at land-bank, DA, shovel-ready or mid-construction stage? The lender universe changes at each stage.
- Rebuild the feasibility conservatively. Add contingency. Remove optimistic sales assumptions. Test a slower exit.
- List your missing documents. At minimum: ID, entity documents, contract of sale or title details, plans, approvals status, build contract if available, feasibility, recent statements, ATO portal position if relevant, and asset-liability summary.
- Write the exit in one sentence. Sale of completed stock, refinance to investment debt, or another specific path. If you cannot write it cleanly, the lender cannot credit it cleanly.
- Ask whether the overrun source is already identified. Existing equity, undrawn facility, second tranche, or future sales. “We will work it out” is not a funding source.
The script to use with any broker or lender
Most borrowers ask, “Can you do the deal?” Ask this instead:
“For this project, what are your conditions around contingency, progress claims, QS sign-off, valuation basis, presales, extension rights and cost overruns? Please set out the likely documents, timing and all third-party reports.”
That question forces the real issues onto the table early.
The mistake that keeps repeating
The repeated mistake is chasing the biggest loan amount before proving the cleanest structure. More leverage does not fix a weak feasibility. It often amplifies it. A lender who pushes you to a stretched structure with no breathing room is not necessarily helping you.
The better order is: approval path, realistic cost base, documented exit, then loan sizing.
If you want a second set of eyes on the structure, Shane St Reynolds also publishes commentary at shanereynolds.com.au and can be contacted directly for more complex matters where finance, negotiations and documentation intersect.
Where Poseidon Finance fits
Poseidon Finance arranges business and investment funding across development loans, business loans, cash-flow funding and facilities that may help rationalise tax debt where appropriate. The practical advantage is speed at the front end: fast indicative approval, online application, and a focus on presenting the deal properly before everyone starts paying for reports.
That matters because a poor first submission wastes weeks. A good one surfaces the real lender issues early: stage, security, cost base, exit and evidence.
Apply online or talk it through first
If you are seeking land, construction or cost-overrun funding, start here: poseidonfinance.com.au.
If you want to discuss the structure first, book a consultation at shanestreynolds.com/contact, email [email protected] or call 08 6263 6236.