When we receive a development funding enquiry, the first question we usually get asked is:
“What are your rates and fees?”.
It’s a fair question – but comparing lenders isn’t that simple.
Two lenders may offer similar rates and fees but deliver vastly different client experiences, structure those charges differently, and impose terms and conditions that significantly impact the actual cost of funding.
Beyond that, these differences can materially affect how and when you access your development loan. They also shape the overall borrowing experience and, ultimately, your ability to keep the development moving and bring it to a successful completion. In this blog, we look beyond the headline figures and explore what makes a good term sheet.
Rates and Fees
We’ve talked about pricing in plenty of detail elsewhere, but it’s worth touching revisiting – for many developers, rates and fees are still the first thing they look at when choosing a lender.
The headline numbers, though, rarely tell the full story. Lenders might quote a low interest rate and a small monthly line fee to mask what is a high IRR loan when annualised and combined with the establishment fee. Others may have fixed extension fees irrespective of what the additional required term is, or early repayment fees that only show up when timelines shift or settlements happen ahead of schedule.
Line fees should be carefully considered, particularly in cases where there is no initial cash advance against the land (i.e., the land is unencumbered). If your project is delayed due to unmet pre-drawdown conditions, line fees may still accrue based on the full facility limit. This is an important distinction to – interest is typically only charged on the drawn loan balance, whereas line fees apply regardless of drawdown activity.
That’s why it’s important to look beyond just “what’s the rate” and instead focus on how fees are structured. The true cost of funding comes down to the detail – and how those details line up with the realities of your project.
Terms and Conditions
In our view, the terms and conditions (T&Cs) are equally as important and should be scrutinised in the same manner. While interest rates and fees can be comparable across similar lenders, T&Cs are where differences truly show up – and those differences can make or break a project.
You’ll typically see the T&Cs in the form of:
Conditions precedent (CP): These must be satisfied before the loan is drawn down. They’re the lender’s way of ensuring all key information and requirements are in place before releasing funds. Common CPs for development loans include consents and plans, insurances, KYC and AML documentation, development programs, construction contracts, presale agreements and more.
Ongoing conditions: These must be maintained throughout the loan term. They might include regular reporting such as QS reports to facilitate progress drawdowns, filing of GST returns, submission of council inspection reports and generally ensuring the project adheres to key timelines. Think of these as the operating rules of the loan.
Conditions subsequent (CS): These are obligations that must be met after the loan has been drawn. These are less common and are usually used by lenders as a means to control or mitigate risk. Pre-sale hurdles or targets are the best example of this, along with deadlines for council sign offs or compliance requirements.
Lastly, any CPs that the lender waives during part of the initial settlement process typically fall to become a CS. Note, this is always at the lenders discretion so its best to satisfy CPs in full before the settlement date.
Meeting your obligations as a borrower
In property development the stakes are high and failing to meet a loan condition can have serious consequences: it might delay settlement, delay or prevent progress payments, or even trigger an event of default – giving the lender the right to cancel the facility or demand immediate repayment.
As a developer, ask yourself:
- Are the conditions reasonable?
- Can I deliver on what is being asked of me, within the timeframe that is required.
The thought process here needs to be broad and needs to extend to all parties that may be involved in the process. It’s not just about the loan terms – it’s about execution. For example;
If a lender imposes a post-settlement condition requiring a council sign-off by a certain date, you’ll need to:
- Ensure your contractor prioritises the required work
- Understand what reports or documentation may be needed to support the application to council
- Account for council processing times
- Build in a buffer for delays
Failure to manage these moving parts can result in missed deadlines, breached conditions, and a risk to the project’s success.
Remember, funders place great weight on a borrower doing what they’ve promised to do. Losing the support of your funder can trigger major issues, often requiring a refinance under pressure. As a lender, we regularly receive refinance applications from clients who have run into trouble after failing to meet their stipulated conditions precedent (CPs) or conditions subsequent (CS) from their previous development funder.This highlights the importance of a clean, well-understood term sheet that sets clear and achievable expectations from the outset.
What Makes a Good Term Sheet?
A “good” term sheet is one that enables flexibility, aligns with your development timeline, and limits surprises. It doesn’t mean there are no conditions—it means the conditions are clear, realistic, and manageable. A lender offering simple, transparent terms with minimal red tape can often be a better partner than one offering a cheaper loan but hiding behind layers of complexity.
If you’re looking for development finance and want to work with a lender who values clarity and backs your ability to deliver, get in touch with the team at ASAP Finance.