The differences between bank and non-bank construction lending:
Bank Lending at a glance
• Interest rates are always the lowest on the market and
as such are the the most attractive to borrowers
• Are not the fastest when it comes to processing times
• Will typically offer lower LVRs than non-bank lenders
• Have strict requirements for servicing and income
coverage ratios
• Require a high level of disclosure when it comes to a
borrowers financial records and income verification
• Will scrutinise the borrowers experience in
development and often require a professional project
manager to be attached the project
• May require submission of a builder's financial records
as well
• Will usually require between 80-120% of debt coverage
through pre-sales in order to trigger funds
Non-Bank Lending at a glance
• Interest rates will vary from moderately to
significantly more expensive than bank rates
• Turnaround times can be quite efficient compared
with the banks
• LVRs will vary but can often be significantly above
bank LVRs
• Often have a more flexible attitude toward
servicing and may allow prepayment or
capitalisation of interest
• Offer low-documentation loans that do not
involve a high degree of financial disclosure
• Pre-sale requirements are far less stringent and in
some cases, not required
When a bank deal becomes a non-bank deal
There are certain circumstances in which a deal that was originally intended to be funded through a bank can transition to
become a non-bank scenario. Most borrowers initally prefer to use bank funding because the lower rates often mean that
the overall costs of the project will be lower. However sometimes it is very challenging to make enough pre-sales to trigger
bank funding. The longer a project lingers on the market, the more difficult it can become to effectively sell off the plan. This
can lead to a downward spiral that can blow out costs, obliterate any savings that would have been obtained by using bank
funding, and even threaten to derail the entire project. One of the ways to prevent this from happening can be to transfer the
loan over to a non-bank lender.
The Transition
The process of transitioning to a non-bank lender can be relatively painless and even though costs may seem high, the flexibility and speed gained by the developer can help to build the project quickly and sell the finished product at higher prices, making up for the increased funding costs. The process is as follows:
• Capstack will take the deal to our lending network and get quotes based on the specific project characteristics
• once the non-bank lender has been nominated and the deal approved, the new lender will refinance the initial bank loan, releasing the original liabilities
• The non-bank lender will provide sufficient funds to complete the project
About Capstack
Capstack is a boutique commercial property finance advisory, offering a wide variety of commercial mortgage solutions
by leveraging market insight and unique lender relationships across the full spectrum of commercial property including:
Mulit-family, retail, office, Industrial and mixed-use properties and development projects.
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Capstack actively sources and negotiates commercial property debt terms from our extensive network of bank and nonbank financial institutions, providing our clients with access to the best terms available from across the lending landscape.
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Reach out to us here at any time to discuss further.
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This document is for discussion purposes only and is not intended as financial advice.