Opinion: Bank vs Non-Bank. A Case Study From HoldenCAPITAL


With interest rates at levels not seen for generations, the conditions are ripe for fresh approaches to construction funding methods and while the majority of construction debt is sourced from the major banks, HoldenCAPITAL have utilised their experience and real-time market data to access alternative lending institutions securing some attractive alternatives to suit individual client needs. This includes the sourcing and negotiation of Joint Venture Partnerships and passive equity investment for medium to large sized projects.

The HoldenCAPITAL team is often asked what is the difference between bank and non-bank funding and in most instances there are only three significant differences:• Interest rate
• Pre-sales requirements
• The amount of equity commitment required from the borrower.

Two of these factors are easily quantifiable but what about the question of pre-sales?

Pre-sales or no Pre-sales
Interest rate and equity requirements might initially indicate that one option be preferred over the other, but if we assess their specific requirements with a full understanding of the project and market conditions, the best choice might not be the most obvious. The best way to illustrate this is by way of a case study that HoldenCAPITAL has prepared.

Funding table comparison
Bank and non-bank lenders have different requirements regarding loan ratios. Most non-bank lenders are so called gross realisation (GR) lenders and the main criterion for them is a loan to value ratio (LVR) of no more than 65%. Bank lenders also require a maximum LVR of 65%, but in addition they impose a limit of no more than 80% of the total development cost (TDC).

The benefits of managing project timing
The bank option benefits from a significantly lower total interest cost however, the non-bank alternative does not require the delay of between 3-6 months associated with the pre-sales requirement and benefits from a lower requirement on developer equity with the potential for a significantly increased return on investment.

The key differential is that the non-bank option potentially allows the project to be completed in a shorter timeframe with a consequential reduction in the potential for a market shift to impact the project viability.

Daniel Erez, Managing Director of New Ground Properties endorses these points noting that “For every pre-sale we currently secure we could probably sell 4-5 near completed units...”.

In the case of a no-presales option “… we are still providing the same de-risking strategy by selling out prior to completion, the difference is that it is happening later in the project … you don’t need to fund the pre-sales and commissions are paid 100% from settlement proceeds.”

To find out more about which option best suits your next project, contact Dan Holden at HoldenCAPITAL on 0401 669 502 or visit

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