Construction Finance in Australia: The Four Types and Which One Fits
Construction Finance
Four types compared · Builders and business owners · Chooser guide
A home build, a warehouse, a row of townhouses and a builder waiting to be paid all need construction finance, but not the same kind. This guide separates the four practical finance problems, then follows the customer from land and contract timing through valuation, approval, progress payments, variations and shortfalls to completion or a mid-build problem, so you can see what to solve before it becomes the next bottleneck.
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Quick Answer
Construction finance is funding used for building work, usually released progressively as construction is completed. For most Australian scenarios, it helps to separate four practical categories: residential construction loans, commercial construction loans, development finance, and business finance for builders. The right path depends on what is being built, who will own or use it, how the debt will be repaid, and what has to happen next: land settlement, contract signing, a valuation, a progress claim or an exit at completion. Talk to us about your build.
Also called: construction loan, building loan, progressive drawdown loan.
In this guide
- 1What types of construction finance are there in Australia?
- 2Which type of construction finance does my project need?
- 3Is a construction loan the same as development finance?
- 4In what order do the land, approvals, the builder and the finance happen?
- 5How do banks, non-bank lenders and private lenders differ on construction finance?
- 6How do you finance a construction company, not just the build?
- 7What do lenders check before approving construction finance?
- 8How much does construction finance cost?
- 9Frequently asked questions
What types of construction finance are there in Australia?
There are four types of construction finance in Australia, and they differ by who borrows, what is funded and how the money is repaid. The first three fund property. The fourth funds the business doing the building.
- Residential construction loan, for a home you will live in or rent out.
- Commercial construction loan, for a commercial or industrial building, often your own business premises.
- Development finance, for a project built to sell or hold at scale.
- Builder business finance, for the business that does the building rather than for a building.
A residential construction loan funds a home you will live in or rent out, released in stages as the builder reaches each point in the contract. In our experience self-employed borrowers are assessed on the same build logic as anyone else, but on different income evidence, which is covered in residential construction loans for self-employed borrowers.
A commercial construction loan funds a commercial or industrial building, often premises for the borrower's own business. The lender looks at the business as well as the build, and the detail is in how commercial construction loans work.
Development finance funds a project built to sell or to hold at scale, frequently including the land, and is repaid from sales or a refinance. For the full mechanics, see property development finance explained.
Builder business finance is the one most explanations leave out. It is not a loan for a building at all. It is finance for the business that builds: cash flow between claims, contract security, and construction equipment and vehicle finance.
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| Type | Who it usually suits | What it funds | How the money is released | Usual security | Consumer credit law? |
|---|---|---|---|---|---|
| Residential construction loan | Self-employed borrowers building a home to live in or rent out | The build, and often the land | In stages against the builder's progress claims, after an inspection | A mortgage over the land and the finished home | Generally yes |
| Commercial construction loan | Business owners building their own premises, and investors building commercial property | The build of a commercial or industrial building | In stages against certified progress, often with a quantity surveyor | A mortgage over the site | Generally no, when the purpose is business |
| Development finance | Developers and builders building to sell or hold at scale | Often the site, the build and project costs | In stages against quantity-surveyor-certified costs; interest is often capitalised | A first mortgage over the development site | Generally no, when the purpose is business |
| Builder business finance | Builders, trades and civil contractors | Cash-flow gaps, plant and equipment, contract security | As a limit, an advance or an asset loan, not in build stages | Business assets, receivables or property | Generally no, when the purpose is business |
Consumer credit law column: under section 5 of the National Credit Code, the Code covers credit to an individual (or a strata corporation) provided wholly or predominantly for personal, domestic or household purposes, or to purchase, renovate or improve residential property for investment purposes. Read on the Federal Register of Legislation, National Consumer Credit Protection Act 2009, Compilation No. 52, compilation date 1 July 2026, read 17 September 2026. General information, not legal advice. Whether the Code applies depends on the facts.
Which type of construction finance does my project need?
Four questions usually sort a project into the right finance lane: what are you building, who will own and use it, will it be kept, leased or sold, and who is borrowing?
There is a branch most people miss. Building premises for your own business, such as a warehouse, workshop, clinic or factory, is usually a commercial construction facility rather than a home loan, even for a sole trader. The lender assesses the business that will occupy the building, not just your personal income, and commercial property loans are the natural end point once it is built.
Why the number of dwellings matters to a lender. Banks carry a heavier capital charge on development exposures than on ordinary home lending, which is why a lender's answer can change as a project grows (see how lenders differ, below). Each lender sets its own line on where a home build becomes a development, so there is no single dwelling count that decides it. If you are financing two to six townhouses, expect lenders to disagree about which box you sit in, and to price accordingly. Larger projects move squarely into development finance for your project.
The legal split. Residential construction loans to individuals are generally covered by consumer credit law, while commercial and development facilities for a business purpose generally are not. That changes the paperwork, the protections and sometimes the lender pool, and it is part of how the rules differ for a home you build yourself.
Who the borrower is. The third question is the one most often answered late. A build can be financed in your own name, through a company or through a trust, and the choice moves the file between lender pools. The consumer credit test only reaches credit provided to an individual (or a strata corporation), so a company borrowing to build is assessed as a business from the start. Lenders will also want to see who guarantees the facility, and whether the entity that borrows is the one that will own, occupy or sell the finished building. Settle the borrower before you ask for quotes, because changing it after approval usually means a fresh assessment.
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| Your project | Usually starts with | What would change it |
|---|---|---|
| Building a home to live in | Residential construction loan | Planning to sell on completion, or building several dwellings |
| Knocking down and rebuilding, or a major renovation | Residential construction loan, on the same staged mechanics as a new build | Whether the work needs council approval and a priced contract, and whether you stay in the property |
| Building a duplex or a few dwellings to keep | Residential construction loan or small-scale development finance, depending on the lender | The number of dwellings and titles, and whether any will be sold |
| Building townhouses or apartments to sell | Development finance | The size of the project and the presales held |
| Building a warehouse, workshop or clinic for your own business | Commercial construction loan | Leasing it to someone else instead of occupying it |
| Building commercial property to lease | Commercial construction loan | Whether a tenant has committed before the build |
| Managing the build yourself as an owner builder | A much smaller lender pool, because no licensed head builder carries the build risk | Whether you hold an owner builder permit, and who warrants the work |
| Short of cash between progress claims or while retention is held | Builder business finance | The gap is on your own project rather than a client's |
What should you know before you ask lenders for quotes?
Know the next event you need the finance to survive, not just the finished building. A useful first brief is: the land settlement date and any debt already on the site; whether the building contract is a quote, draft or signed contract; where planning or building approval sits; the current land value; the full build cost including items outside the contract; the cash and usable equity you can contribute; and what repays the debt at completion. That prevents a lender quote from answering the wrong version of the project.
Is a construction loan the same as development finance?
Not always. Australian lenders use “construction finance” and “development finance” differently. In this guide, a construction loan means staged funding for property the borrower will usually keep, while development finance means whole-project funding where repayment commonly comes from sales or a refinance. Some lenders use construction finance to mean the construction component of a development facility, so compare the actual facility terms rather than the label alone.
There is a third option between the two that side-by-side comparisons tend to skip: a commercial construction loan for a business's own premises. It is assessed partly like a development, on the contract, the costs and the completed value, and partly like a business loan, on trading. The page on how development finance works covers the sell-down side, and builders weighing both routes can compare commercial property loan or development finance for builders.
Be careful with the labels, because the market does not agree on them. No Australian regulator or industry body publishes a definition that settles the boundary, and three different usages are in circulation: construction finance as the owner occupier product against development finance as the build to sell product, construction finance as the build leg inside a larger development facility rather than a separate product at all, and construction loan as the homeowner version against construction finance as the developer version. This guide uses the first. When you compare offers, check what a lender means by the word rather than assuming it matches what you read somewhere else.
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| Residential construction loan | Commercial construction loan | Development finance | |
|---|---|---|---|
| What it funds | The build of a home you will live in or rent out, often with the land | The build of a commercial or industrial building, often your own premises | A project built to sell or hold at scale, often the site, the build and project costs |
| Who usually borrows | An individual or a couple, sometimes through a trust | A business owner or a commercial investor, often through a company or trust | A developer or builder, usually through a project company or trust |
| How it is repaid | From your income, as an ordinary home loan once the build is finished | From the business, or from rent, after the facility converts or is refinanced | From sales of the finished stock, or a refinance onto a held facility |
| What the lender leans on most | Your serviceability and a fixed-price building contract | The trading position of the business and the as-if-complete value | The feasibility, the certified costs and the sales or presales evidence |
| Who signs off each release | Usually a valuer or an inspector | A valuer, and often a quantity surveyor | Almost always a quantity surveyor |
| Interest during the build | Usually paid monthly on the drawn balance | Paid monthly or capitalised, depending on the facility | Often capitalised into the loan and repaid at the end |
| Consumer credit law? | Generally yes | Generally no, when the purpose is business | Generally no, when the purpose is business |
In what order do the land, approvals, the builder and the finance happen?
There is no single national order for every construction loan, but the safe sequence is to test borrowing capacity before you commit, give the lender the full project documents for construction approval, and do not rely on the first progress draw until every commencement condition is satisfied.
- Land and funding envelope. Work out whether you already own the site, are buying it separately, or need one facility to cover land and construction. If the land is under contract, the settlement date is the first hard deadline.
- Plans, approvals and builder pricing. Pre-approval can happen before the final contract and approvals are ready, but the lender still needs enough detail to know what is being built and what it will cost.
- The building contract. Full construction assessment usually needs the signed contract, plans, specifications and progress payment schedule. If you sign before formal loan approval, get legal advice on the finance condition and the dates you are agreeing to rather than assuming a short cooling-off period will protect you.
- Full construction assessment and valuation. The lender checks the borrower, builder, contract, funds to complete and an as-if-complete valuation. A lower valuation can change the amount you have to contribute even when the contract price has not changed.
- Commencement conditions. Before the first draw, the lender may still need final council or building approvals, insurance, evidence that your contribution has been paid and any other conditions in the letter of offer.
- Progress payments. The loan then releases in stages against invoices and verified work. Variations, delays and cost shortfalls need to be dealt with while the build is running, not left until the final claim.
Why “get finance before you sign” is too simple. Some lender pathways allow pre-approval before the builder is chosen or the contract is signed, then require the signed fixed-price contract and a valuation before full construction approval. So the useful rule is not a slogan about signing order. It is to know your borrowing position before you commit, to know what your approval is actually conditional on, and to know exactly what protection remains if you sign before formal approval lands.
Which sequencing mistakes create the biggest funding gaps?
Four mistakes recur. Buying land on a short settlement before you know the total build budget. Signing a fixed-price building contract without enough time or protection for finance and valuation. Paying deposits or starting work before required insurance and lender conditions are in place. And changing the contract after approval without first asking what the change does to the valuation, loan limit and funds to complete.
What does the law cap before residential work starts?
Deposit caps, insurance requirements and cooling-off rights are set by state law and differ across Australia. They matter to the finance because money paid too early can be difficult to recover, while a legal cooling-off period can be much shorter than the time needed for a lender to finish a construction assessment.
What the law caps before work starts
- 10%In NSW, a builder can only seek up to 10 per cent of the total contract price as a deposit before work commences, and any payment above that may not be recoverable under home building compensation cover.Source: NSW Government, Protecting yourself in case of builder insolvency, updated 1 September 2026, read 18 September 2026.
- 5%In Victoria the deposit is capped at 5 per cent where the contract price is $20,000 or more, and 10 per cent where it is under $20,000.Source: Consumer Affairs Victoria, Deposits and payments for domestic building, under the Domestic Building Contracts Act 1995, read 18 September 2026.
- 5Victoria gives five business days of cooling off on a major domestic building contract, running from the date you receive the copy signed by the builder, not the date you signed.Source: Consumer Affairs Victoria, Cooling off on a building contract, read 18 September 2026.
NSW and Victoria only, on residential building work. Caps, thresholds, insurance and cooling-off rights differ by state and territory, and commercial contracts sit under different rules. General information only. Check your state regulator and your own contract.
One NSW detail is especially easy to get backwards: on residential work valued at $20,000 or more, the builder must provide the home building compensation cover certificate and must not ask for payment before the cover is in place. That is a contract and insurance issue as well as a finance issue, because paying early can change what is recoverable if the builder later fails.
Victoria has a carve-out that catches careful people. The five business day cooling off right on a major domestic building contract is lost if you engaged a lawyer to review the contract before you signed it, which means the careful move and the reversible move are not the same move. Check your own state before you assume either is available.
What changes if you are an owner builder?
Owner-builder finance sits with a smaller lender pool because the lender does not have the same licensed head builder and fixed-price contract to rely on. State permit rules also differ. If you plan to manage the build yourself, establish both the permit pathway and the finance pathway before committing to the land or assuming a standard construction loan will work.
How do banks, non-bank lenders and private lenders differ on construction finance?
Banks, non-bank lenders and private lenders differ mainly in funding model, regulation, credit policy, pricing and appetite for project risk. APRA-regulated banks are subject to capital rules for acquisition, development and construction exposures; non-bank and private lenders are not subject to those same ADI capital rules, so their lending policies and project appetite can differ materially.
The APRA rule is a bank capital rule, not a borrower limit. Under APS 112, an ADI can apply a 100 per cent risk weight to qualifying residential acquisition, development and construction exposures where specified conditions are met, including total debt below 75 per cent of qualifying development costs and, for exposures over $5 million on a single development, qualifying presales at least equal to total debt. Other ADC exposures receive a 150 per cent risk weight. That can influence bank appetite and pricing, but it is not a universal presale rule or a maximum loan-to-cost ratio imposed on every borrower.
The market also moves with competition. The RBA reported in March 2026 that competition in commercial real estate lending had contributed to some easing in terms, including lower presale requirements at some lenders, while lenders remained more discerning about project fundamentals, location and the builder or developer. Read the RBA Financial Stability Review, March 2026, read 18 September 2026. That is why a bank decline is not automatically a verdict on the project: it can reflect policy, concentration, capital treatment, risk appetite or the way the lender views the exit.
Non-bank and private money can solve a policy or timing problem, but flexibility has to be compared with the whole term sheet. A faster approval is not useful if the facility expires before the build can finish, and a lower presale requirement is not useful if the interest, fees or exit assumptions make the project too tight. Builders can see the broader shift in why builders are shifting to non-bank lenders, and the current appetite discussion in what lenders are funding going into FY27.
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| Lender type | Regulatory position | Presales and project policy | Speed, flexibility and cost | Often considered when |
|---|---|---|---|---|
| Banks | APRA-regulated deposit-takers, subject to prudential capital rules | Can be more policy-driven on development presales, cost, builder and exit tests | Can be slower on complex files; pricing can be lower where the project fits policy | The borrower and project fit a bank's policy and there is time for a full process |
| Non-bank lenders | Not ADIs; consumer-credit licensing applies where the National Credit Code applies | Policies vary widely and can be more flexible on some development criteria | Can move faster and accept structures a bank will not; total cost is often higher | A bank cannot fit the structure, timing, borrower or project |
| Private lenders | Structure and regulatory perimeter vary; business-purpose lending can sit outside consumer credit law | Can place more weight on security, equity and the exit than a mainstream lender does | Often short-term and higher-cost; speed can be an advantage on time-critical files | The need is short-term, time-critical or outside mainstream policy and the exit is clear |
These are market patterns, not universal rules. Individual lenders inside each category can behave very differently, and the relevant licensing and consumer-credit position depends on the borrower, purpose and structure.
The capital rule behind some bank development decisions
- 150%ADIs must apply a 150 per cent risk weight to ADC exposures that do not meet the conditions for the 100 per cent treatment. A loan secured by a home under construction that will be the borrower's primary residence is excluded from this ADC category.Source: APRA, Prudential Standard APS 112, Attachment A, paragraphs 29 and 30, read 18 September 2026.
- 75%For the 100 per cent treatment, total debt must be below 75 per cent of qualifying development costs and, where aggregate exposure to the borrower exceeds $5 million for a single development, qualifying presales must be at least equal to total debt.Source: APS 112, Attachment A, paragraph 29.
These are prudential risk-weight conditions for banks, not a loan offer, borrower entitlement or universal lender policy. A lender can be stricter than the prudential minimums.
How do you finance a construction company, not just the build?
You finance a construction company by matching each cash-flow gap to a different product: a progress claim gap, a retention, a bank guarantee, new plant and mobilisation costs each have their own fix, and none of them is a construction loan.
If the problem is waiting on a progress claim to become cash, start there rather than with a construction loan. A progress claim is the builder's request for payment for work done, and the gap between lodging it and being paid is a working-capital problem.
The same logic runs across the rest of the business. Money held back as retention, meaning cash kept until completion or the end of the defects liability period, has its own timeline. Contract security, usually a bank guarantee or a performance bond, which is a surety's promise to pay the principal if the contractor defaults, is its own facility. Mobilisation costs, the labour, materials and hire paid before the first claim, usually sit with a working capital facility or a business line of credit, and new plant with equipment finance. The table below maps each gap to its fix.
| Problem | What causes it | Products usually matched |
|---|---|---|
| Waiting on a progress claim | The client or head contractor pays on its own payment clock | A business line of credit, a working capital loan, or finance against the claim |
| Retention held back | Cash retained until completion or the end of the defects period | Working capital; asking to replace cash retention with a bank guarantee or bond |
| A contract that needs security | The principal wants a bank guarantee or performance bond | A bank guarantee facility or a surety bond |
| New plant, trucks or equipment | Winning bigger work | Equipment finance or a chattel mortgage |
| Mobilising for a new contract | Labour, materials and hire paid before the first claim | A working capital loan or a line of credit |
| A short-paid or disputed claim | A payment schedule for less than the claim | Your state's security of payment process first; short-term finance only to cover the gap |
How fast the money arrives depends partly on your state's security of payment law, which sets how long a head contractor, the builder contracted directly with the client, has to pay. Victoria's amended Security of Payment Act took effect on 15 April 2026 and applies to all construction contracts, including those signed before that date, although most domestic building contracts are excluded (Building and Plumbing Commission Victoria, updated 30 June 2026, read 17 September 2026).
State payment clocks and trust rules
- 15In NSW, a principal must pay a head contractor within 15 business days of a payment claim. Source: NSW Government, Security of Payment, citing s 11(1A)(a), updated 26 August 2025, read 17 September 2026.
- 20 / 10A NSW head contractor must pay a subcontractor within 20 business days on non-residential work and 10 business days on residential work. Source: same page, citing ss 11(1B)(a) and 11(1C)(b).
- 2In Queensland, contractors on eligible contracts must hold two kinds of trust account: a project trust account for each eligible contract, and one retention trust account for cash retentions. Source: Business Queensland, updated 24 June 2026, read 17 September 2026. Applies to eligible contracts under the Building Industry Fairness (Security of Payment) Act 2017 (Qld).
NSW figures are NSW only, and they are the longest periods the Act allows where the contract sets no deadline; a contract can set a shorter one. General information only. Check your own contract and your state regulator.
What do lenders check before approving construction finance?
Every construction lender is trying to answer four questions: can the borrower carry the debt, can the project be completed with the money available, can the builder and contract deliver what was valued, and is there a credible repayment path at completion?
What every construction lender checks
- Your income or trading position and credit history
- Your cash contribution, usable equity and source of funds
- The building contract, plans, specifications and full costings
- The builder's licence, insurance and suitability for the job
- An as-if-complete or on-completion valuation
- Whether enough undrawn money remains to finish after each release
- The exit after construction: ordinary home loan, business servicing, rent, sales or refinance
What changes by type
- Home build: personal serviceability, fixed-price contract and completed residential value
- Business premises: business trading, specialised security risk and completed commercial value
- Development: feasibility, total development cost (TDC), loan-to-cost (LTC), gross realisation value (GRV), equity, presales where required, quantity-surveyor reporting and the sales or refinance exit
- Owner builder: permits, detailed cost evidence, contingency and a much narrower lender panel
On a development, lenders commonly rebuild the feasibility around total development cost (TDC), loan-to-cost (LTC), gross realisation value (GRV), equity, presales where required and the exit. A quantity surveyor typically certifies costs and progress before releases. The detail belongs in what a development feasibility has to prove, rather than turning this construction-finance chooser into a second development-finance guide.
Why do construction finance applications stall or get declined?
Construction files usually stall because one part of the project does not reconcile with the rest: the costings do not match the contract, the contribution cannot be evidenced, the builder or insurance cannot be verified, the valuation comes in below the funding plan, a variation changes the approved project, or the lender cannot see how the debt will be repaid at completion.
What happens if the valuation is lower than the build cost?
A lower as-if-complete valuation can reduce the amount the lender is willing to advance and increase the cash or equity you have to contribute. The contract price does not force the finished property to value at the same number. On a residential build, the worked mechanics are in what happens when the construction valuation is short; on a business premises build, see how commercial construction limits are measured against cost and completed value.
Can you change the plans or sign a variation after approval?
Yes, but do not assume the existing loan automatically funds the change. A variation can change the cost, the valuation, the progress schedule and the amount of money left to finish. Lenders generally expect to be told when a fixed-price contract changes, and a variation can trigger a fresh valuation and change the amount available to you. If a change increases cost, get the lender's position before you sign or pay for it, then work out whether the extra comes from savings, a revised facility or a different solution. See what to do with a mid-build cost overrun.
What if the loan approval or construction period runs out?
Construction facilities carry lender-specific start and completion deadlines, so there is no single Australian expiry period. Your loan documents will usually set a window for taking the first draw after the letter of offer, and a maximum build period running from that first draw. Treat both as hard project milestones and contact the lender before they expire, not after. If funding has already stopped, use the guide to a construction funder withdrawing or refusing the next draw.
How does the money actually reach the builder?
Once the facility is approved and ready to draw, the builder invoices at the agreed stages, the borrower authorises the claim, and the lender releases money after whatever inspection or certification its process requires.
- Approval and setup. The facility documents are signed and all pre-draw conditions are satisfied.
- Your contribution. Many lenders require some or all of the borrower's cash contribution to be used before or alongside lender funds. Follow the letter of offer rather than assuming the same rule applies everywhere.
- The first release. The first construction draw is made against the agreed stage, invoice and any required inspection.
- Each later stage. The lender repeats the process through the staged drawdowns, checking that the work is complete and enough money remains to finish.
- The final release. The lender may require a final inspection, building insurance and state-specific completion documents before paying the last amount.
If the builder's claim does not match the approved progress schedule, do not assume the lender will pay the difference. The lender can limit the release to the amount and stage already approved, ask for the variation and updated project documents, or require you to cover the shortfall before the scheduled draw proceeds. Borrowing more is generally treated as a fresh construction application, which can mean updated documents, another inspection and a new valuation. The gap between an invoice and the approved stage amount is usually yours to cover, and it is almost always cheaper to settle before the work is done than after.
What happens after the final progress payment?
For a residential construction loan, the lender completes its final checks and the construction loan then functions as an ordinary home loan under the repayment structure in the loan agreement. Most facilities switch from construction-period interest-only repayments to principal and interest after the final draw, unless a longer interest-only period was agreed up front. For a commercial build, the next step may be conversion or refinance to a term commercial property loan. For a development, the exit is usually settlements, a residual-stock facility or a refinance, so practical completion is the start of the exit rather than the end of the finance job.
If you want to know where your file stands before you commit to the next step, check your eligibility.
How much does construction finance cost?
There is no single construction-finance rate or total cost: it varies by loan type, project, borrower and lender. The total cost is usually the interest charged on funds actually drawn, plus establishment, valuation, inspection or quantity-surveyor, legal and sometimes commitment or line fees. Development and some commercial facilities may capitalise part or all of the interest into the loan instead of collecting it monthly.
- Interest on the drawn balance. You generally pay interest on money released, not on the entire approved limit from day one.
- Capitalised interest. Common on development and some commercial facilities, where interest is added to the debt rather than paid monthly.
- Establishment fee. Charged when the facility is set up.
- Line or commitment fee. Some commercial and development facilities charge a fee on part of the approved but undrawn limit.
- Valuation fee. For the as-if-complete or on-completion valuation the lender relies on.
- Inspection or quantity-surveyor fees. For progress checks before releases.
- Legal and settlement costs. These can include the lender's legal costs on business-purpose facilities as well as your own advisers.
What you pay while the build is running changes over time. Interest starts lower because only part of the loan has been drawn, then rises as more stages are funded. If you are also paying rent, an existing mortgage or business premises costs, that overlap can be as important to serviceability as the construction loan itself. If interest is capitalised, the monthly cash drain can be lower but the debt at completion is larger.
Which costs are most often missed because they sit outside the building contract?
The building contract is not the project budget. Depending on the job, you may still need cash for demolition, design and consultants, authority charges, soil or site work, utility connections, driveways, landscaping, fitout, temporary accommodation or rent, interest and loan fees, plus any variations or provisional-sum shortfalls. Lenders look at funds to complete, so an unfunded cost outside the contract can stop a draw even when every builder invoice is correct.
A provisional sum is a budget allowance, not a guaranteed final cost. If the actual item costs more than the allowance, the extra amount can become a variation or an additional borrower contribution rather than an automatic increase to the construction loan. The finance question is whether enough approved money and borrower funds remain to finish the whole project after the higher cost is included.
How much do you have to put in?
There is no single deposit or equity percentage that applies to every construction project. Your contribution is the gap between the total amount needed to complete the project and the amount the lender approves after applying its valuation, serviceability, loan-to-value, loan-to-cost and funds-to-complete rules. The number can move if the completed valuation is lower than expected, the contract changes, or important costs sit outside the contract.
A home build, a commercial premises build and a development can all use different measurement bases, so comparing only a quoted percentage can be misleading. For a builder or developer, what drawdowns cost a builder shows why the timing of interest and equity matters as much as the headline limit.
Can land you already own count as the deposit for a construction loan?
Yes. Usable equity in land you already own can form part of your contribution because the lender takes security over the site and the finished property. But land equity is not the same as accessible cash. Existing debt against the land reduces the usable equity, the lender still chooses the value it will accept, and you can still need cash for fees, excluded costs, variations and a valuation shortfall. On a residential build, see how land equity and a construction shortfall interact; on a commercial build, see how land already owned is treated in a commercial construction facility.
Can you get 100% construction finance in Australia?
"100% construction finance" needs context. A lender may be able to fund the whole building contract or construction component where you already have enough usable equity in the land or other acceptable security, but that is not the same as funding 100% of the total project with no contribution from you. Existing debt, the lender's accepted land and completed values, costs outside the contract, fees, variations and the funds-to-complete test can still leave you needing cash. Ask what the quoted percentage is actually 100% of: the building contract, the lender's accepted construction cost, or the whole project cost.
What we see in Switchboard's construction files
Approval times, rates and contributions vary by lender and project, so Switchboard does not publish one standard figure for all construction finance. The useful question is whether the file still closes after the lender applies its own valuation and funds-to-complete test.
What stalls construction files most often
- Costings that do not reconcile to the building contract
- A contribution the lender cannot see or cannot use when required
- A valuation that comes in below the funding plan
- A builder whose licence or insurance is not current for the job
- A variation signed before the lender has checked the revised cost to complete
- A commencement or completion deadline approaching without an agreed extension
What to have ready before you speak to anyone
- The building contract, current quote or tender, with the stage schedule
- Full project costings, including everything outside the contract
- Planning, council or certifier approval, or a clear note of where it sits
- Evidence of your cash contribution, land equity and where each dollar comes from
- The builder's licence details and current insurance
- Your income evidence, whether tax returns or business bank statements and BAS are relevant
- The land title, or the contract of sale if you are still buying
- The intended exit after construction: home loan, commercial term debt, sales or refinance
Indicative only, based on Switchboard files. Not a quote or an offer. Your terms depend on the lender's assessment of your project. Not financial advice.
If the build runs into trouble
Do not treat every mid-build problem as a request for more money. If the builder wants a price increase, start with whether the cost overrun is actually payable and fundable. If the lender has stopped releasing money, use the construction funding stopped mid-build guide. If the builder itself fails, deal with the contract, insurance and replacement-builder position before assuming a new lender can simply take over the old facility.
If you need to change builders, tell the lender before the replacement builder starts work. The lender will usually need to reassess the remaining cost to complete and may require a new signed building contract, revised progress-payment schedule, current approved plans and updated insurance. The lender will usually want the new signed building contract, a revised progress-payment schedule, current approved plans and updated insurance before funding restarts, and a change of builder can itself trigger a new valuation. Funding can remain paused until the lender is satisfied that the new builder, revised contract and remaining funds can complete the project.
Frequently Asked Questions
Construction finance releases money progressively as the build reaches agreed stages rather than paying the whole loan on day one. The builder submits an invoice or progress claim, the lender checks the stage through its required inspection or certification process, and then releases the approved amount. Interest is generally charged on the balance drawn to date. For the detailed payment path, see how progress claims and drawdowns move or stop.
There is no single deposit percentage for every Australian construction loan. Your contribution is the gap between the total amount needed to complete the project and the amount the lender approves after applying its valuation, serviceability, loan-to-value, loan-to-cost and funds-to-complete rules. Existing land equity can help, but you may still need cash for fees, excluded costs and variations.
Yes. Usable equity in land you already own can form part of your contribution because the lender takes security over the site and the finished property. Existing debt against the land reduces that usable equity, and land equity is not the same as cash, so you can still need accessible funds for costs the lender will not advance.
Sometimes a lender can fund the whole building contract or construction component where you already have enough usable equity in the land or other acceptable security. That is not the same as funding 100% of the total project with no contribution. Existing debt, the lender's accepted values, costs outside the contract, fees, variations and funds-to-complete can still leave you needing cash.
Many standard residential construction-loan pathways are built around a licensed builder and a fixed-price contract with plans, specifications and a progress payment schedule. Cost-plus contracts, owner-builder projects and materially incomplete contracts can narrow the lender pool because the final cost is harder to establish. The exact contract requirement depends on the lender and project.
A lower as-if-complete valuation can reduce the amount the lender is willing to advance and increase the contribution you must provide. The building contract price does not force the finished property to value at the same amount. Before committing to a shortfall, check the valuation basis, the lender's limit and the full cost to finish. The residential worked example is in the self-employed construction loan guide.
Yes, but a variation can change the cost, valuation, progress schedule and funds-to-complete calculation. Tell the lender before you sign or pay a material variation so you know whether it needs consent, a revised valuation or a fresh assessment, and whether the extra cost has to come from your own cash. See what to do with a mid-build cost overrun.
There is no universal approval timeframe. A straightforward file with the contract, plans, costings, borrower documents and valuation ready can move differently from a development that still needs approvals, a quantity-surveyor review or presales. Missing or inconsistent documents are a common source of delay, so work backwards from the land settlement, contract and build dates rather than relying on a generic number.
Construction lenders set their own commencement and completion deadlines in the loan documents. If the first draw or completion date is approaching, contact the lender before it expires because an extension can require updated documents, a new valuation or a reassessment. If the lender has already stopped funding, use the construction funding stopped mid-build guide.
Yes. A warehouse, workshop, clinic, factory or other commercial building can be funded through a commercial construction facility. The lender assesses the business or investment case, the building contract, the completed commercial value and how the finished debt will be serviced. See how commercial construction loans work.
Presales are mainly a development-finance question, and the requirement varies by lender, project and facility. APRA's APS 112 sets presale conditions that affect the capital treatment of some bank residential development exposures, but those are prudential rules for banks rather than a universal borrower requirement. The distinction matters. The RBA records that in February 2025 APRA clarified that its 2017 letter on commercial property lending did not set minimum presale requirements, guidance some lenders had previously read as requiring qualifying presales of at least 100 per cent of committed debt. Some non-bank and private lenders consider lower-presale structures at a different cost or risk position.
Your loan does not shrink when your builder fails: you still owe what has been drawn. Progress funding usually pauses, because the building contract and cost-to-complete position the lender approved no longer exist. Releases restart once a replacement builder, a revised contract and updated costings are approved, which can also trigger a new valuation, so tell the lender before any replacement builder starts work. Home building compensation or the equivalent state insurance may cover part of the cost to finish, and in NSW payments above the 10 per cent deposit cap may not be recoverable under that cover. Speak to your lender, your insurer and your solicitor before engaging anyone new. Where the funder is the problem rather than the builder, see a funder pulling out mid-build.
Construction finance in Australia is best treated as four practical finance problems: a home build, a commercial premises build, a development, or the working-capital needs of the builder itself. The right lender is only part of the answer. The project also has to survive the order of land settlement, contract signing, valuation and formal approval; then the progress-payment process, variations and funds-to-complete tests; and finally the exit after practical completion.
Key takeaway: choose the finance lane first, then work backwards from the next hard deadline and the final repayment event.