Construction Loan Builder Requirements: What Lenders Really Check Before Approval

If you’re planning a commercial property development or construction project, you’ve probably heard about the recent construction industry challenges. With over 3,200 Australian construction companies entering insolvency in 2024 alone, lenders have become increasingly vigilant about the builders they’re prepared to fund. Understanding exactly what lenders look for in builder requirements can be the difference between approval and rejection for your commercial construction loan.

As someone who’s helped secure construction finance for Australian property developers many times, I can tell you that builder due diligence isn’t just a box-ticking exercise anymore. It’s become the critical gating factor in getting your property development finance approved.

Why Construction Loan Builder Requirements Matter More Than Ever

Here’s the reality: when a builder goes under mid-project, everyone loses. The developer faces massive cost overruns, the lender’s security is at risk, and the project can stall for months or collapse entirely. That’s why construction lenders now conduct thorough due diligence on every builder before releasing a single dollar.

The alignment of interests between lenders and developers is actually quite natural. Both parties want the same thing: a completed project, delivered on time and within budget. For you as the developer, completion means return on investment through sales or leasing. For the lender, completion ensures loan repayment and minimises default risk.

This shared goal is why lenders invest so heavily in vetting builders. They’re not trying to make your life difficult; they’re protecting both their investment and yours.

The 7 Core Construction Loan Builder Requirements

1. Financial Stability Assessment

This is where the rubber meets the road. Lenders want to see that your builder has the financial capacity to complete your project, even if market conditions deteriorate or unexpected costs arise.

What lenders examine:

Real example: I recently worked with a Melbourne developer on a $3.2 million medical centre construction project…

Documentation required:

• Project portfolio showing completed works of similar size and scope
• Client references from recent projects (typically last 12-24 months)
• Evidence of completing projects on time and within budget
• Management team experience and capability statements
• Litigation history review (any ongoing disputes or past legal issues)

Here’s a tip: lenders don’t just take the builder’s word for it. They’ll often contact past clients directly and review completion certificates, practical completion dates versus contracted dates, and any variations or disputes that arose.

3. Current Workload and Capacity Analysis

Even a financially strong builder can become overstretched. Lenders carefully assess whether taking on your project would overextend the builder’s resources.

Key capacity metrics:

I’ve seen developers fall in love with a builder who’s doing great work elsewhere, only to discover that builder is already managing 10 other projects and simply doesn’t have capacity to take on another. It’s heartbreaking, but it’s also a recipe for delays and cost blowouts if you proceed anyway.

4. Licensing and Compliance Requirements

This might seem obvious, but you’d be surprised how many applications hit delays because of licensing issues.

Essential compliance checks:

• Current builder’s licence appropriate for the project size and type
• Building code compliance history and quality of past work
• Occupational health and safety records
• Environmental compliance if relevant
• All trade licences for key personnel

Each Australian state has different licensing requirements and thresholds. For example, in Queensland, you need a QBCC licence for projects over a certain value. In New South Wales, it’s a different system. Make sure your builder holds the correct licence for your state and project value.

5. Insurance Coverage Verification

Comprehensive insurance isn’t just good practice; it’s essential for protecting everyone involved in the project.

Required insurance policies:

• Public Liability Insurance: Covers potential damages to third parties or property during construction.
• Contract Works Insurance: Protects against physical damage to the project during construction.
• Professional Indemnity Insurance: Covers errors or negligence during design and construction.
• Workers’ Compensation Insurance: Ensures coverage for injuries or accidents on site.

Lenders will want to see current certificates of currency for all these policies, and they’ll verify them directly with the insurer. The coverage amounts need to be appropriate for your project size.

6. The Critical Role of the Quantity Surveyor’s Report

The QS report is often the make-or-break document in construction loan approval. It provides independent verification that your project is financially viable and that the builder’s costings are realistic.

What the QS report certifies:

• Total development costs are accurate and complete
• Cost to complete remaining works is properly calculated
• Loan term is adequate for the construction timeline
• Project aligns with your feasibility study
• Capitalised interest coverage is sufficient

Here’s the thing: if your builder’s quote seems too good to be true, the QS report will probably expose it. I’ve seen projects where the QS identified a 15-20% shortfall between the builder’s quote and realistic market costs. Better to know this upfront than discover it when you’re halfway through construction.

7. Tax Compliance and ATO Clearance

This requirement has become increasingly important as the ATO intensifies action on collecting tax debt from construction companies.

ATO requirements:

• Confirmation that all tax payments are current
• No outstanding GST or PAYG withholding debt
• Employee superannuation payments up to date
• Payment plan in place if any historical debt exists

Why does this matter so much? Because construction companies with tax debt are at high risk of receiving Director Penalty Notices from the ATO, which can quickly push them into insolvency administration. Lenders want to avoid funding a builder who might collapse mid-project due to ATO action.

How This Affects Different Types of Commercial Projects

Builder requirements can vary depending on what you’re building. Here’s what I typically see:

Office and Retail Developments

For office building finance or retail property construction, lenders focus heavily on the builder’s track record with commercial fit-outs and their relationships with specialist trades. They want to see experience with complex services integration (HVAC, electrical, data cabling) and compliance with commercial building standards.

Industrial and Warehouse Projects

With industrial property loans and warehouse construction finance, the emphasis shifts to structural engineering experience, particularly with large clear-span buildings, loading dock construction, and heavy-duty floor slabs. Lenders want builders who understand industrial specifications.

Specialised Properties

Projects like medical centres, childcare centres, or hospitality venues require builders with specific experience in those sectors. The compliance requirements are more stringent, and lenders know it takes specialised knowledge to navigate them successfully.

The Builder Approval Documentation Package

When you’re ready to apply for construction finance, your builder will need to provide a comprehensive documentation package. Here’s what typically goes in it:

What Happens If Your Builder Doesn’t Meet Requirements?

Don’t panic if your preferred builder falls short on one or two criteria. There are often solutions:

How a Commercial Finance Broker Can Help

This is where my role becomes crucial. As a commercial finance broker who specialises in construction and development projects, I know exactly what different lenders require and which lenders are more flexible on specific criteria.

Here’s what I do for clients:

• Review your builder’s documentation before submission to identify potential issues
• Match you with lenders who are comfortable with your builder’s profile
• Pre-negotiate with lenders to address concerns before formal application
• Coordinate with QS providers to ensure reports meet lender expectations
• Help your builder understand what additional documentation or explanations might be needed
• Manage the entire approval process to keep everything on track

Recently, I worked with a Brisbane developer on a $4.5 million mixed-use development. Their builder was excellent but had slightly lower liquidity than the first lender wanted. Rather than give up, I approached two other lenders I knew had more flexible liquidity requirements. We secured approval within three weeks with a competitive rate.

The Future of Builder Requirements in Construction Finance

Given the ongoing insolvency challenges in the construction sector, I expect lender requirements to remain stringent for the foreseeable future. In fact, we’re seeing some lenders introduce additional requirements:

• More frequent financial reporting during construction
• Direct payment to subcontractors in some cases
• Enhanced monitoring of builder workload throughout the project
• Stricter scrutiny of related-party transactions
• Greater emphasis on builder’s technology and project management systems

The good news? Builders who meet these requirements are generally more reliable and better equipped to deliver your project successfully. The due diligence process, while sometimes frustrating, is ultimately protecting your investment.

Key Takeaways

• Builder financial strength is paramount: Net tangible assets exceeding 20% of project value and liquidity of at least 10% of turnover are standard requirements.
• Experience matters: Lenders want proven track records with similar-sized projects and verifiable client references.
• Capacity assessment is critical: Your builder needs bandwidth to take on your project without becoming overextended.
• Documentation is extensive: Plan for 2-3 weeks to gather all required builder documentation and reports.
• The QS report is essential: This independent verification often makes or breaks construction loan approval.
• Tax compliance can’t be ignored: ATO clearance is now a standard requirement for builder approval.
• Work with specialists: A commercial finance broker who understands construction lending can significantly improve your approval chances.

About the Author

Nadine Connell is a Commercial Finance Broker and co-founder of Smart Business Plans. With over 15 years of experience in commercial property and construction finance, Nadine has helped secure funding for hundreds of development projects across Australia. She specialises in navigating complex construction loan requirements and matching developers with the right financing solutions.

Related Resources

• Commercial Construction Loans Guide
• Property Development Finance Options
• SMSF Construction Loan Requirements
• Construction Loan Refinancing