The rise and rise of the non-bank funders in Australia has provided property developers and investors with access to flexible, practical and cost effective options for development and investment finance.

At Wefund, we regularly look to alternative lenders and the billions in capital they are deploying to help our clients buy, develop and refinance real estate. Australia’s non-bank lenders are timely, flexible, cost effective and a boon for the economy.

Nonetheless, we often find that the gold standard for CRE debt and development finance remains at the banks. For the right projects, Australian banks can be the cheapest and most desirable source of capital.

Despite the nascent non-bank funding sector, banks still make up over 90% of Australia’s 381-billion-dollar plus CRE debt market. They are well capitalised, borrow money at close to 0% from the RBA and are actively competing against one another for opportunities; they offer some amazingly cheap funding.

For construction loans, Wefund deals with some banks that are seeking to lend up to 65% of a project’s net realisable value and are happy to fund up to 80% of total development costs. With all up rates (inclusive of line fees, margin and establishment fees) as low as 4.5%. For commercial property, investment loans can start from as low as 1.5% with 1-to-5-year interest only periods and rise to 70% of the value of the underlying asset.

Not all loans will qualify for bank finance: for residential construction finance, the banks will want to see minimum of 80% of net debt covered by pre-sales and a qualified consultant team and reputable builder. Important factors are the viability of the development, its profitability, the capital structure and legal arrangements of the borrowing entity and the security structure generally.

For investment loans covering commercial assets, a strong tenant on a long lease with solid terms will be required and a minimum two times interest coverage ratio is a must (ratio of net income to interest obligations). Some of these conditions are more stringent than what is available at non-banks, but many are the same. If a deal can meet the requirements, Australian banks are the cheapest option; they are also a highly regulated and professional option with which to partner.

Commercial borrowing is not so simple and the stringent checks and balances at banks can complicate it further. However, Wefund is here to help our clients with their funding process and find the best solution available in the market for their needs.

We are living through the lowest interest rates in the history of commercial property finance. Banks remain the solid foundation of all commerce in this country, from home loans to credit cards to corporate finance. High quality loans can be funded by banks and Wefund is passionate about helping our clients access the cheapest debt in the history of debt. We like to tell people that you should borrow when you can, not when you need to. If you can, you should take it to the bank.

To stay up to date with our latest articles, blogs and podcasts, head to Wefund’s Website and sign up to our newsletter.