In property development, the difference between a profitable project and a missed opportunity often comes down to speed. The ability to move quickly on a site acquisition, lock in a deal before competitors, or bridge a funding gap during construction can determine whether a project gets off the ground at all. This is why private lending has become an essential tool in the modern Australian developer's toolkit.
The Developer's Dilemma: Opportunity vs. Process
Property development is inherently time-sensitive. Vendors want certainty and fast settlement. Councils impose permit expiry dates. Construction costs rise with every month of delay. And the market does not wait while a bank deliberates over your application for six to eight weeks.
Traditional bank development finance is well-suited to certain stages of a project — particularly construction drawdowns on approved developments — but it is rarely flexible enough to handle the fast-moving, unpredictable nature of site acquisitions and early-stage project funding. This is where private lending fills a critical role.
How Developers Use Private Lending
Experienced developers across Australia use private lending strategically at various stages of their projects. Here are the most common applications:
Site Acquisition
Securing a development site in a competitive market often requires unconditional offers and rapid settlement. Private lenders can assess a deal and settle within days, giving developers the ability to act decisively when the right opportunity presents itself. A developer who can offer unconditional terms and a two-week settlement has a significant advantage over one who needs to wait on bank approval.
Private acquisition loans are typically structured as interest-only for six to twelve months, giving the developer time to obtain planning approvals, arrange longer-term construction finance, or complete pre-sales before transitioning to a bank facility.
Residual Stock Loans
After completing a development, it is common for a few units or lots to remain unsold. Banks that funded the construction often want their facility repaid in full, even if the developer still has stock on the market. A private loan secured against the remaining stock allows the developer to repay the bank, avoid fire-sale pricing, and sell the remaining units at market value over a sensible timeframe.
Pre-Development Funding
The period between acquiring a site and commencing construction is often the hardest to finance through traditional channels. Banks generally will not fund a project until planning permits are in place and pre-sales are achieved. Private lending can cover this gap, funding the site acquisition and holding costs while the developer works through the approval process.
Bridging Between Projects
Developers who run multiple projects simultaneously sometimes need to bridge capital from one project to the next. If proceeds from a completed project are delayed — due to settlement extensions, buyer finance delays, or other factors — a short-term private loan can keep the next project on track.
What Private Lenders Look For in a Development Deal
Private lenders assess development deals differently from banks. While banks focus heavily on the borrower's financial position, income, and serviceability, private lenders are primarily concerned with:
- Security quality: The value and marketability of the property being offered as security. First mortgage lending is the standard, and lenders will carefully assess the loan-to-value ratio to ensure adequate coverage.
- Exit strategy: How will the loan be repaid? For developers, common exits include refinancing to a bank construction facility, pre-sales settlements, or outright sale of the site at a profit. A clearly defined and realistic exit strategy is essential — without one, a responsible lender will not proceed.
- Developer experience: While private lenders are more flexible than banks on paper qualifications, they do want to see that the borrower has relevant experience and a track record of delivering projects.
- Deal fundamentals: Does the project make financial sense? Is the end value supported by comparable sales? Are the construction costs realistic? Private lenders are commercial operators who understand development economics.
The Cost-Benefit Calculation
The most common concern developers have about private lending is cost. With first mortgage rates starting from around 10% per annum — compared to bank rates that may be significantly lower — the interest expense is undeniably higher.
However, experienced developers understand that the cost of capital must be measured against the cost of missing the opportunity. Consider these scenarios:
- A site is available at $2 million. By the time a bank approves finance in eight weeks, the vendor has accepted another offer. The developer misses a project that would have generated $800,000 in profit.
- A developer needs to settle in ten days to exercise an option before it expires. The interest cost on a six-month private loan might be $100,000 — a fraction of the project's total margin.
- Residual stock worth $1.5 million is being sold at a 20% discount because the bank is demanding immediate repayment. A private loan preserves $300,000 in value by allowing the developer to sell at market price.
In each case, the private lending cost is a strategic investment that enables a significantly larger return. Smart developers treat it as a cost of doing business — one that is factored into their feasibility studies from the beginning.
Working with Private Lenders: What to Expect
The process of obtaining private development finance is faster and more direct than dealing with a bank. Typically, borrowers should expect:
- An initial assessment within 24 to 48 hours of submitting the deal.
- Interest-only loan terms of six to twelve months as a minimum.
- All legal costs to be borne by the borrower, including the lender's solicitor fees.
- A requirement for independent valuation of the security property.
- Settlement timeframes as short as a few days for straightforward deals.
At Esteb Capital, we work with property developers across Australia who understand the value of speed and certainty in their funding. Our focus on first mortgage lending from 10% means we maintain disciplined security positions, while our streamlined assessment process ensures developers get answers quickly. If you are working on a development project that needs fast, reliable funding, we are here to have that conversation.