When a lender reviews a property development finance application, they usually focus on three key metrics (assuming the feasbility is a good representation).
If these three numbers look good, your chances of getting funded increase significantly.
If they don’t, you will need to find ways to rectify it or not go ahead with the project.
Those three numbers are:
LTC, LVR, and Profitability.
Let’s break them down in a way that’s easy to understand.
Loan to cost ratio (LTC)
This measures how much the lender is funding compared to the total development cost of the project.
In simple terms, it tells the lender:
“How much of the project are we funding, and how much is the developer contributing?”
For example:
Total project cost = $3,000,000
Loan required = $2,100,000
LTC = 70%
That means the lender is funding 70% of the project and the developer is contributing 30% (equity).
This is why LTC and equity are closely linked.
Lower LTC = higher equity
Higher LTC = lower equity
Most development lenders typically prefer LTC around 65% – 75% of total development cost.
Why lenders care about LTC:
If costs increase during construction, the developer still has equity in the deal.
This reduces the risk of the project running out of money.
Lower LTC usually means:
More equity in the project
Lower risk for the lender
Stronger approval chances
Loan to value ratio (LVR)
This measures how much the lender is lending compared to the value of the project.
For example:
If the finished development is expected to be worth $4 million, and you require $2.8 million of lending. The LVR is 70%.
Most development lenders prefer LVRs somewhere around 65% of the completed value (aka Gross Realiasation Value).
Why?
Because it gives them a safety buffer if property prices move or sales take longer than expected.
Lower LVR usually means:
Less risk for the lender
Higher chance of loan approval
Profitability
This is the number lenders care about the most.
Because if the project isn’t profitable, there is no margin for error.
Profitability is usually calculated as:
GRV minus total development cost (TDC)) ÷ The end value of the project (total sales of all units).
Most lenders like to see a minimum profit margin of around 20%.
For example:
If a project costs $3 million and the end value of all units for sale is $4 million, the profit is $1 million.
That’s a 25% margin ($1 million divided by $4 million) which lenders will likely feel comfortable with.
This margin acts as a buffer in case things go wrong during the project.
Construction costs might increase.
Sales prices might drop slightly.
Projects might take longer to complete.
Profit protects both the developer and the lender.
A higher profit also means you have more funds to take to your next project/ venture.
Why these three numbers matter
Property development lending is really about risk management.
Lenders want to know three things:
How much of the project they are funding (LTC)
How much they are lending compared to value (LVR)
Whether the project is profitable (Profit margin)
If these three numbers make sense, lenders are far more likely to support the project.
If they don’t, the deal usually needs to be restructured before it can be funded.
This is why experienced developers spend a lot of time getting their feasibility and numbers right before approaching lenders.