Commercial Construction Loans

How does commercial construction finance work?

Commercial construction loans are designed to help cover the costs of building a new structure on an undeveloped site. This can include industrial and retail developments or larger residential projects like townhouses and apartment buildings. Loans for commercial construction generally have shorter terms and higher interest rates compared to personal loans or mortgages.

Construction business loans are structured to match the length of the construction cycle. This will vary depending on the unique circumstances and scope of each construction project, but typically it will be from six months through to 18 months for larger commercial property developments. The projected value of the completed project forms the basis of the construction loan. A loan-to-value ratio (LVR) of 65% is typical, however this may be extended to minimise the amount of equity required.

Construction projects can be broken down into ‘hard’ costs and ‘soft’ costs. Hard costs are directly related to the actual building process including equipment, materials, and labour. Soft costs are all the other associated expenses to complete the project like permits, plans, inspections and approvals. Typically around 80% of the hard costs will be covered by a commercial construction loan while developers can also look for a mezzanine or stretched debt facility to include the soft costs.

Most commercial construction loans give the borrower access to funds progressively based on a draw schedule for each stage of construction. These stages are usually known as base, frame, lock-up, fixing and completion. You’ll only pay interest on the amount that is drawn down at each stage, rather than the entire loan. Once the project is finished, the borrower will need to repay the balance of the construction funding or refinance the loan, such as with a residual stock facility.

We have worked with Dan Holden to finance our projects since 2009, we have always found him to be reliable and has always delivered. We have completed multiple projects under his funding guidance. Dan adds much more than just funding to our group. Even through the credit-constrained times, Dan always ensured we had the right loan to suit our requirements.

Ron Bakir – Homecorp

Over 30 projects funded with HCP

HCP’s loans for Commercial Construction

Site Loans

A straight-forward solution to get your site settled or refinanced.

Key features

Loan amount

$1M – $15M

Loan term

6 – 12 months

LVR

65% – 70%

Security

1st Mortgage

Locations

Metro. Regional considered*

Fees and charges

Interest rate

from 9.5% pa

Establishment fee

from 1.5%

Monthly admin fee

from 0.04% pcm

Senior Debt Construction Loans

A "keep it simple" approach to funding your project.

Key features

Loan amount

$1M – $15M

Loan term

6 – 18 months

LVR

Up to 65% or 73% with stretch product

Security

1st Mortgage

Locations

Metro. Regional considered*

Fees and charges

Interest rate

from 9.5% pa

Establishment fee

from 1.75%

Junior Debt Construction Loans

A top-up piece between senior debt and borrower equity.

Key features

Loan amount

$1M – $10M

Loan term

6 – 18 months

LVR

Up to 75%

Security

2nd Mortgage

Locations

Metro. Regional considered*

Fees and charges

Interest rate

from 18% pa

Establishment fee

from 2.75%

Residual Stock Loans

Enables you to refinance your existing facility and affect an orderly sell down ensuring value and the resulting return on investment are protected.

Key features

Loan amount

$1M – $15M

Loan term

6 – 12 months

LVR

Up to 70%

Locations

Metro. Regional considered*

Fees and charges

Interest rate

from 9.5% pa

Establishment fee

from 1.75%

Preferred Equity Loans

Deal rich, cash poor? HCP can partner with you to help deliver your projects and enhance your return.

Key features

Loan amount

$1M – $10M

Loan term

6 – 18 months

LVR

Up to 97%

Security

2nd Mortgage or Preferred Equity

Locations

Metro. Regional considered*

Fees and charges

Coupon

from 24% pa or negotiated profit share

Establishment fee

from 2%

Monthly admin fee

from 0.2% pcm

Reverse Equity Loans

Have a project where construction funding is in place, the builder has commenced and you would like to secure your next site / project. HCP can help.

Key features

Loan amount

$1M – $10M

Loan term

12 – 18 months

LVR

Up to 75%

Security

2nd Mortgage or Preferred Equity

Locations

Metro. Regional considered*

Fees and charges

Interest rate (2nd Mortgage)

from 15% pa for low risk / low gearing

Interest rate (Preferred Equity)

from 23–26% pa

Establishment fee

from 2%

Monthly admin fee

from 0.2% pcm

Need to secure commercial property finance for a current or upcoming project?

HCP’s ExpressFUND is a stream-lined process providing fast approvals and funding solutions. Submit your scenario via our ExpressFUND form.

Submit a Scenario

Why choose HCP for commercial construction funding?

HCP understand that speed to market is critical for property developers to maximise their investment.

One of the most common reasons cited for commercial construction projects failing is due to cash flow difficulties. HCP offers fast approvals for commercial construction finance to help you deliver your projects.

Banks can take two or three months and even then you might still not be approved for construction funding. HCP’s quick turnarounds within two weeks are a significant point of difference, particularly when construction costs are rising. If a developer executes the build contract with a builder now, they want to deliver the project now because materials will be only more expensive in another six months.

Banks were overcommitted to construction funding pre-GFC. That event and others since, such as tighter APRA regulations and Covid-19, have seen traditional lenders dramatically reduce their appetite for construction project finance. Banks don’t want to be funding 12-month construction business loans because they don’t generate the same revenue as 30-year home loans. This is why HoldenCAPITAL Partners has become a popular finance option for developers as a specialist non-bank lender.

Many of our clients have had long-term relationships with banks, but they now understand the benefits of using a non-bank lender for commercial construction loans. HCP works alongside property developers by providing reliable and flexible construction finance to help them grow their business and develop a pipeline of projects. Capital is made available across the full risk spectrum from senior debt levels through mezzanine finance to preferred equity.

Whether you need solutions for commercial construction finance in Brisbane, Sydney, Melbourne or anywhere throughout Australia, HCP is ready to assist. Since 2017, our experienced team has completed loan facilities exceeding $150 million across some 40+ projects. Our funding capacity has grown and we are now providing land and construction loans up to $15 million. Submit your scenario for construction project finance today to get express funding from HoldenCAPITAL Partners.

Need more information? Download our lending guide.