The Builder Your Lender Has to Approve Too
A development lender underwrites your builder as well as you. What gets checked on licence, capacity, cover and contract before a facility is approved.
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Builder Due Diligence / Contract Type / Development Finance
On a development facility the lender is underwriting two counterparties, not one. Your builder is assessed on licence currency, financial capacity, insurance and contract type before the deal is approved.
Quick Answer
A development lender assesses your builder as well as you. Licence and registration currency, financial capacity against the contract value, insurance and warranty cover, and the contract type all get tested before development finance is approved. A fixed-price building contract reads cleanest.
Why Does Your Builder Get Assessed as Well as You?
Your builder gets assessed because the lender is underwriting two counterparties, not one. You carry the debt, the builder carries the delivery, and a builder who stops mid project turns a performing loan into a half finished asset with no revenue behind it.
The pattern is familiar. A developer arrives with equity in place, a site under control, a feasibility that stacks up and a builder already signed. The borrower side of the file clears quickly. Then the questions start landing on the builder, and the developer discovers that the part of the deal they treated as settled is the part still being underwritten.
Approvals are rising while builder capacity is not rising at the same pace, which is the practical reason capacity is now tested rather than assumed. More work is being approved than there are builders with headroom to absorb it, and capacity is what a funder is really measuring when it asks how many projects your builder is carrying.
From the underwriter's seat this is not scepticism about the builder personally. It is that the security is a partially built asset for the whole term of the facility, and the only thing converting that asset into a saleable or refinanceable property is the builder turning up. That makes builder risk a funding input rather than a project management detail, which is the same logic running through construction facilities at every business stage.
What Does Licence Currency Actually Mean?
Licence currency means the builder holds the right class of licence or registration for the work, in the state where the work is happening, and that it is current rather than lapsed, suspended or restricted. All 3 of those elements get checked, not just the first.
The class matters because licences are scoped. A builder licensed for low-rise residential work does not automatically carry the entitlement for a Class 2 apartment building, and a restriction on the licence can cap the value of work permitted without anyone in the project team noticing until a funder runs the search.
Jurisdiction matters just as much. Licensing sits with each state and territory, so a builder licensed in one state does not automatically carry the entitlement to run the same job across a border. The technical standards the work is built to are national through the National Construction Code, but the right to carry out the work is not, and that split catches out builders expanding into a neighbouring market for the first time.
Currency is the easiest of the 3 to fix and the most common to trip a file, because renewals lapse quietly. A licence that expired 6 weeks ago is a delay rather than a decline, but it is a delay that arrives after the file has been written up and after the developer has committed to a settlement date. Check it before the deal is presented, not when the funder does.
How Is Builder Capacity Measured?
Builder capacity is measured by reading the contract value against the builder's own balance sheet and against the work they are already carrying. It is the check developers most underestimate, because a builder who is capable of the job can still be unable to absorb it.
A builder running several projects at once has the same working capital stretched across all of them. Where a single contract is large relative to anything previously delivered, the file typically slows and additional evidence is requested, regardless of how good the builder is on site.
| Capacity signal | What it gets read against | What strengthens it |
|---|---|---|
| Contract value | The largest project the builder has completed | Comparable completed work of similar scale |
| Current workload | The builder's working capital and staffing | A schedule of live jobs with completion dates |
| Balance sheet strength | Exposure across all projects, not just yours | Recent financials, not returns from 2 years ago |
| Trade and supplier conduct | Payment history and retention disputes | Clean references from recent subcontractors |
| Program realism | Weather, approvals and lead times | Stage durations with allowances built in |
| Warranty eligibility headroom | Cover already committed to other jobs | Written confirmation of remaining eligibility |
Warranty eligibility deserves a specific mention because it is the one signal produced by someone who has already reviewed the builder's books. A builder whose insurer has reduced their eligibility limit has effectively had their capacity capped by an independent party, and a funder will treat that as more informative than any reference.
Which Insurances and Warranties Get Checked?
The cover checked on a builder is contract works, public liability, and where the project type requires it, home warranty or domestic building insurance eligibility. Currency of each policy is checked, and so is whether the cover actually extends to this project.
| Cover | What it protects | What actually gets checked |
|---|---|---|
| Contract works | The partially built asset during construction | Sum insured against contract value, and the named insured |
| Public liability | Third party injury and property damage on site | Currency and the level of cover for the project type |
| Home warranty or domestic building insurance | Completion and defects where the builder cannot finish | Eligibility remaining, not just that a policy exists |
| Professional indemnity, where designs are builder led | Design and documentation errors | Whether the scope covers design responsibility |
| Workers compensation | The builder's own workforce | Currency in the state the work is performed |
Eligibility matters more than the policy on the warranty line. A policy is issued job by job, but eligibility is a limit set by the insurer across everything the builder is carrying. A builder can hold current cover on 3 jobs and have no eligibility left for a fourth, which stops your project without any of the existing policies lapsing.
None of this is exotic. It is documentary, it is knowable in advance, and it is where deals stall when nobody has gathered it. The construction loan pack exists to front-load exactly this material, and the certificates take days rather than weeks to obtain if you ask early.
Why Does the Contract Type Change the Read?
The contract type changes the read because it determines whether the lender is funding against a fixed number or a moving one. A fixed-price contract is the cleanest read, though requirements vary by lender, because it gives a single contract sum for a defined scope that can be tested against the feasibility and against the limit.
Cost plus and construction management arrangements are not disqualifying, but they shift cost risk back onto the borrower and onto the funder. They are usually met with a larger contingency, a tighter quantity surveyor mandate and a lower advance against cost. The gap that causes trouble is between what the developer believes is agreed and what the contract actually fixes.
The contract also sets the machinery the facility runs on for the whole build: how a progress claim is made and certified, how retention is held and released, what triggers practical completion, and what happens on delay. A funder reads all of it, because those clauses decide whether drawdowns can be paid on time. The quantity surveyor report then sits on top of the contract as the independent read of the same numbers.
Which contract you should be signing, and what its variation and delay clauses commit you to, is a legal question rather than a finance one. Have a construction solicitor review the contract before execution. A broker can tell you how each contract type is likely to be funded, and that is a different question from what the document obliges you to do.
What Goes in the Builder Pack?
The builder pack is short and it is the same on most files. Assembling it before the deal goes to a funder is the single biggest lever a developer has over assessment speed, because it removes the back and forth that turns a 2 week decision into a 6 week one.
Passes the builder check
- Licence or registration current, correct class, correct state
- Contract value proportionate to work completed to date
- Fixed-price contract for a clearly defined scope
- Contract works, liability and warranty cover current
- 2 or 3 comparable completed projects evidenced
- Financials that support the whole current workload
- Program with realistic stage durations and allowances
Stalls the builder check
- Licence lapsed, restricted, or held in another state
- Contract value well beyond anything previously delivered
- Cost plus with no cap and no contingency
- Warranty eligibility exhausted or reduced by the insurer
- Track record in a different build type or scale
- Financials unavailable, or old enough to be uninformative
- Program with no allowance for weather or approvals
Two points worth flagging. The failures on the right are mostly recoverable when they surface early and mostly fatal to the timeline when they surface late. And the same evidence set is what any funder reads when a builder needs short-term capital of their own, so the pack has a second life beyond this project.
What Happens if the Builder Does Not Clear?
If the builder does not clear, the deal is rarely dead, but it changes shape. Which of the 3 usual outcomes lands depends on whether the issue is documentary, structural or fundamental.
| Type of issue | Typical example | Usual outcome |
|---|---|---|
| Documentary | Lapsed licence renewal or financials out of date | A delay rather than a decline, measured in days |
| Structural | Contract value out of proportion to delivery history | Approval with conditions, and a lower advance against cost |
| Fundamental | Warranty eligibility exhausted, or the wrong licence class | A different builder, or a different funder |
| Contractual | Cost plus with no cap on a project sized to a fixed sum | Larger contingency and a tighter surveyor mandate |
| Mid-build change of builder | Original builder cannot continue | A consent event, with the facility paused while the replacement is assessed |
For smaller developers the outcome is usually the second row, and the answer is structural rather than a change of builder. That is also the point where the difference between funder types matters most, because non-bank lenders and specialist funders read builder capacity differently from major banks. Where that appetite currently sits is covered in the non-bank development funding market read.
Changing builders mid-build is worth treating as its own category. It is a lender consent event, not an administrative one, because the replacement has to clear the same assessment the original did and the contract sum has to be retested against the approved limit. Raising it early is materially better than raising it after work stops, and the termination and novation questions that come with it belong with a solicitor before anyone signs anything.
Where Is Lender Appetite on Builder Risk Heading?
Lender appetite on builder risk is being reshaped by a capital rule that is still under consultation and not in force. Nothing in this section is a current rule and none of it can be relied on today.
On 29 June 2026 APRA released a consultation proposing changes to how residential land acquisition, development and construction exposures are risk weighted. The relevant proposal reduces the qualifying presales requirement from 100 per cent of total debt to 50 per cent for exposures to qualify for the lower risk weight, with a pre-lease requirement replacing presales for build-to-let structures. Submissions close on 7 September 2026 and the proposed commencement is 1 April 2027, with the detail published by APRA.
What it signals is direction rather than outcome. If the presale threshold moves, the constraint on a project shifts further onto the delivery side, which makes the builder assessment a larger share of the credit decision rather than a smaller one. A funder freed from requiring full presale cover still has to be satisfied the building will be finished.
On files being structured today the practical response is unchanged: get the builder pack right and get it in early. How the pieces of a build facility fit together sits in the construction hub, and the jurisdictional rules that sit underneath the contract itself are covered in same build, different rules across the border.
A development lender is assessing two parties on the same file. Your equity, your feasibility and your exit decide how much is available. Your builder's licence currency, financial capacity, insurance eligibility and contract type decide whether the money can actually be drawn. Most of what gets checked is documentary and knowable before the file goes anywhere, which makes the builder pack the cheapest speed you can buy on a development finance facility.
Key takeaway: Assemble the builder's licence, financials, insurance and contract before the deal is presented, because that pack is assessed whether you prepare it or not.Frequently Asked Questions
Yes. The builder is a second counterparty whose failure would stop the project and impair the security, so approval is part of the credit decision rather than a formality. It usually turns on licence and registration currency in the relevant state, financial capacity relative to the contract value, current insurance and warranty eligibility, and delivery history on comparable projects. A builder who cannot clear those checks can hold up an otherwise clean file, which is why the construction loan pack gathers that evidence alongside the quantity surveyor report.
Some will, but the assessment is tighter because the borrower and the builder are the same party, which removes the independent contract sum a funder normally tests against. Expect a lower advance against cost, closer scrutiny of the schedule of works, and a quantity surveyor engaged from the outset. Owner builder projects sit at the harder end of construction lending and are assessed case by case rather than against a standard policy.
It depends on whether you are building one dwelling to hold or several to sell. A single owner occupied or investment build usually sits on a progress payment construction loan, while a multi dwelling project sits on development finance assessed on cost, revenue and exit. Both fund in stages against certified progress rather than in one advance, and the dividing line is usually the number of dwellings and whether the exit is a sell-down, tested as set out in how a lender tests your sell-down assumption, or a refinance.
You can, but it is a lender consent event rather than an administrative one, because the replacement builder has to clear the same assessment the original one did and the contract sum has to be retested against the approved limit. Expect the facility to pause while the new contract, licence, insurance and revised program are reviewed. Raise it early, and get a solicitor across the termination and replacement documents before signing, as the timing consequences flow through to capitalised interest on the facility.
It is not a universal requirement, but a fixed-price building contract is the cleanest read because it caps the cost side of the feasibility the funder is advancing against. Cost plus and construction management arrangements can still be funded, typically with a larger contingency, a tighter surveyor mandate and a lower advance against cost. Where the contract type is unusual, expect more questions about variations, delay costs and who carries them.
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