Tips to help you choose between Development Loan Lenders

Once you have decided to pursue a development, how do you decide which lender to go with?
You know that whomever you choose can greatly impact the flexibility available to you on how and when you get your money, so you don't want to make the wrong decision.

When making a choice, compare each lender offer with the following:

1) Interest Rates: Development loans are usually variable and offered as bank bills rolling every 30 days. Look at the all-up interest rate, that is, the Bank Bill rate + lender margin and compare apples with apples.

2) Fees:
Consider all fees such as:
Application Fee - % or a negotiated flat fee
Valuation Costs and requirements
Line Fee - charged quarterly or monthly
Undrawn Limit Fee - sometimes you can be charged a line fee for loans you dont use!
Bill Drawdown / Rollover Fees - Everytime a bill is renewed/rolled, you may be charged a processing fee
Renewal Application Fees - If the term expires and you need an extension on the term of the loan, you can be charged a new application fee.
Exit Fees - Discharge Fees, and other fees for leaving the bank
Bank Solicitor Fees - They pass on their legal costs when establishing your loan

3) Security required:
Most banks will require a 1st Mortgage over the property being developed. If your development is in a company or trust structure, further security may be required such as a Company Charge.
Personal Guarantees are usuall required from all stakeholders (people who control or will receive the profits)

4) Terms & Conditions:
Loan to Value Ratio (LVR)
The amount of pre-sales required before construction
Capitalised interest loan amount withheld
What happens to loans on completion
Annual review requirements
What financials are required
Charges over deposits of pre-sales
Quantity Surveyor appointed to monitor the cost estimates
Valuations and how many are required
Where funds go when properties are sold

In Summary:
Most lenders will offer similar terms for the same project, however there are usually descrapancies that can impact your development.
In my next posting, I will talk about the Top 10 things you need to ask when dealing with a Property Development Lender.