Lending for developers is different from lending to mum and dad, residential property owners

Dominique Grubisa
Dominique Grubisa

Published 10:15 pm 7 May 2019

Facebook Twitter Pintrest Linkedin Google Plus

Did you know that lending for developers is different from lending to mum and dad, residential property owners? DG Institute Founder and CEO, Dominique Grubisa explains why commercial lending for a developer is different from residential lending. How commercial lending is actually easier and finally where to start if you’re looking to get financing for development.

Having trained hundreds of successful developers and watched the deals that they do, I can tell you that there is a world of difference when it comes to the way they finance their deals. You see, developers don’t do the same thing that mum and dad investors and owner occupiers do when it comes to property.

They use a different arm of the bank, different lending criteria. When we buy a normal residential property, we get a residential loan and that is regulated by APRA, the Australian Prudential Regulation Authority. They control how lenders advance finance to investors and to owner occupiers and there are lots of rules around that.

Right now, it’s harder to get a loan because of the Royal Commission, we’ve got higher lending standards and a lot more compliance involved and APRA is really getting a stranglehold on how people can borrow.

There’s less and less credit for residential investment but the development world and loans to developers are not regulated by APRA. It’s part of the bank that comes under discretionary lending – that means there are no rules, there are no regulations.

→ Download The Exclusive Ultimate Property Developer’s Guide To Success

Lenders Questions

They look at it as a deal and their questions are:

  • Is there a risk here?
  • Is this a profitable deal?

These are all that they worry about. Commercial lending is deal focused – not borrower focused. When you’re borrowing to buy a home or a residential property – whether you’re buying it as an investment or to live in, the bank will look at you. They’ll assess you and responsible lending laws say that they’ve got to actually do a lot of work. They’ve got to make sure you can afford it, they’ve got to get your tax returns, your pay slips, what you spend each month, your expenditure.

A whole of stuff comes under the microscope and there is a lot of red tape around what, how, and who they can lend to. However, if you’re a developer, they’re not focused on you – they’re focused on the deal.

They’re going to ask:

  • How much money do you want?
  • How long do you want it for?
  • What are we going to get out of this?
  • What’s the profit in this development?

Development is about getting other money in to do the deal and it doesn’t have to be your money. Even the billionaires don’t use their own money and the beauty of it is if you’re doing a $20 million dollar development, the bank isn’t going to say to you, well, we need to see that 20% deposit, we need to make sure that you’ve got an income to service debt of $20 million dollars.

They don’t look at that, they look at:

  • What is the profit in this deal?
  • Are there pre-sales?
  • Have you sold any off the plan?

They’ll have those sort of requirements which is fantastic news for you because what you really need are the knowledge and the connections to be able to do development – not the bank balance.


Watch more videos on property development here.

Isn’t that refreshing? Even though it’s hard work to have to get knowledge, it’s not dependent on you having money and you don’t need money to make money. That’s just an excuse! You just need to have the knowledge of what to do and how to do it to find that deal to present to lenders and money partners to fund your vision of building that development.

Brian Tracy

Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practicing legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at info@dginstitute.com.au

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

Our Happy Clients

  • Shane Beard

    "I originally joined DG Institute because I was very interested in doing property development for myself. Like any venture, there has been lows. One of my first deals was a small development where I had just left my full time job. My money partner had sold the property without telling me, which left me back at […]"

    Shane Beard, Property Uplift Graduate

  • Michael Nichols

    "Would i recommend Elite Mentoring? Absolutely. You can reinvent the wheel, what you want to achieve in 2-3 years, you can achieve in 3-6 months with an Elite Mentoring coach."

    Michael Nichols, Elite Mentoring Graduate

  • Larisha Engelbrecht

    "Larisha is a Real Estate Rescue DGI graduate and a member of the Elite Mentoring community. Her biggest learnings as a graduate were gaining a deeper understanding of how to deal with her mindset as well as the mindsets of other homeowners. With this knowledge, she was able to overcome barriers and the softer skills […]"

    Larisha Engelbrecht, Real Estate Rescue Graduate

  • Andrew Canning

    "We bought a distressed property, which was a hoarders home, in NSW.  In 8 weeks we have stripped it, overhauled in with a new kitchen and flooring. It will be a 14-week turnaround with a projected profit of $90k the most learnings i’ve had is my self-confidence. The emotional intelligence I’ve gained is what’s most […]"

    Andrew Canning, Elite Mentoring Graduate

Recent Blog Post

Property Investment Australia

Property Investment Australia

View Post
Your COVID 19 tax return: optimise your home-office refund

Your COVID 19 tax return: optimise your home-office refund

View Post
The Complete Guide To Property Development

The Complete Guide To Property Development

View Post
What is a recession and how will it affect me?

What is a recession and how will it affect me?

View Post
The China and Australia Trade war could burn our Coronavirus recovery

The China and Australia Trade war could burn our Coronavirus recovery

View Post

Breakthrough Success Livestream

Discover How To Protect Your Assets, Secure Your Financial Future And Set Yourself Up For Success