Quick answer
Construction cost overrun funding is a short-term private loan that a developer or builder takes against finished property they already own, that pays the gap between what a project now costs and what the construction facility will fund. It is not a construction loan: we never make progress draws or lend on the build itself. The lump sum lets the project's own lender keep drawing, so the build finishes, settles and repays the loan.
Key points
- Secured on other completed property you own, never on the project under construction
- One lump sum to restore the cost-to-complete position; we don't make progress draws
- Lets the construction lender resume draws so trades and suppliers are paid on time
- Payment claim deadlines under security of payment laws are short; act early
- Exit is usually project settlements, a residual stock refinance or a sale of the security
- Amounts
- $20k – $5m
- Security
- Completed property you already own
- Not offered
- Construction loans or progress draws
- Assessment
- No formal valuation required
Few developments finish exactly on budget. Materials go up, a trade walks off, the ground turns out worse than the geotechnical report suggested, an authority asks for extra works. On a small or medium project, a gap of a few hundred thousand dollars can appear in a single month.
The construction lender then does what its documents require. It recalculates the cost to complete, finds the facility no longer covers it, and stops releasing draws until the developer puts in the difference. The builder needs paying, subcontractors are serving payment claims, and the project can’t move. This page explains how to close that gap with a short-term private loan secured on other completed property you already own, and why that’s different from construction finance.
Is this a construction loan?
No, and the difference matters.
| Construction loan | Overrun funding secured on completed property | |
|---|---|---|
| What it funds | The build, stage by stage | A single lump sum to restore your equity in the project |
| Security | The development site and works | Other completed property you already own |
| How money is released | Progress draws after inspections | One settlement |
| Who provides it | Your construction lender | A private lender such as ours |
| Speed | Each draw follows a site inspection and report | Possible within 24–48 hours once documents are in |
We never make progress draws and don’t lend on a project under construction. The lump sum is paid to you, or as you direct, and you contribute it to the project so your construction lender can keep drawing. For a fuller side-by-side, our construction loan vs property-secured developer funding page sets out where each type of lender starts and stops.
Why do overruns stop a project so quickly?
Construction facilities are usually sized to a budget with a contingency. When the expected cost to complete rises above the undrawn facility plus any remaining contingency, lenders commonly require the developer to fund the difference before further draws. Meanwhile, contractors’ rights to be paid keep running.
Security of payment deadlines are short. The NSW Government’s guidance on the Building and Construction Industry Security of Payment Act explains that contractors have a right to progress payments, usually claimed monthly unless the contract says otherwise. If you don’t intend to pay a claim in full, a payment schedule must be given within 10 business days after the claim is made, or earlier under the contract. If no schedule is given, the claimant can move to adjudication. The maximum payment times are 15 business days from principal to head contractor and 20 business days from head contractor to subcontractor on non-residential work.
In Queensland, the QBCC says a payment schedule must be given within 15 business days after a payment claim, or earlier if the contract states. Failing to respond may be an offence, and not paying the claimed amount by the due date without a payment schedule is an offence with a penalty of up to 100 penalty units. The claimant may also suspend work, start subcontractors’ charges or pursue the debt in court.
These periods leave little time to find cash. A private loan on completed property is one of the few sources that can move inside them.
How does overrun funding work?
- Get the real number. A current cost-to-complete from your quantity surveyor or the lender’s monitor, plus a sensible contingency.
- Confirm what the construction lender needs. The amount and form of the equity it requires before the next draw.
- Identify completed property you own. Investment properties, finished stock from an earlier project, your premises or your home.
- Enquire. Property details, what’s owing, the overrun, the project’s sales position and timeline.
- Receive terms and a Letter of Offer. Amount, structure, term, interest handling and fees.
- Settle and contribute the funds. The construction lender resumes drawing; trades are paid.
- Repay from project settlements, a residual stock refinance or a sale of the security property.
Which structure suits an overrun?
| What you can offer | Usual structure | Why |
|---|---|---|
| Finished rental or stock that is unencumbered | Private first mortgage for 1 to 24 months | First ranking, so usually priced most keenly |
| Finished property already mortgaged to a bank | Registered second mortgage, or a caveat for a short gap | The bank’s loan stays exactly as it is |
| A spread of finished properties, each with some equity | One loan across several titles | No single property has to carry the whole sum |
| Builder’s own premises or yard | First or second mortgage | See builder funding against property |
Because a caveat or second mortgage sits behind someone else’s loan, expect it to be priced above a first mortgage.
How does this compare with other ways to fill the gap?
| Option | Can it move fast enough? | Trade-off |
|---|---|---|
| Private loan on completed property | Yes, possible within days | Short term; your other property secures it |
| Construction lender increases the facility | Sometimes | Needs new approval; may not be offered |
| Mezzanine or second-ranking project lender | Sometimes | Secured on the project; adds layers and approvals |
| A co-venturer tops up | If the partner has cash | Shifts the profit split; our page on JV cash calls covers the partner’s side |
| Selling another property | Rarely fast enough | No debt, but takes months |
| Value-engineering the design | Partly | Saves some cost; may need approvals and affect sales |
Who does this suit?
It suits:
- developers whose construction lender has paused draws pending an equity top-up;
- builder-developers with completed stock or rentals from earlier projects;
- small developers on townhouses, duplexes and boutique apartments with healthy pre-sales;
- JV participants funding their share of an overrun.
It doesn’t suit:
- projects where the overrun has wiped out the margin and the sales can’t repay;
- developers with no completed property to offer;
- anyone seeking progress draws or construction finance, which we don’t provide.
When is funding an overrun the wrong move?
- The project no longer stacks up. If the revised feasibility shows a loss, more borrowing may only deepen it. Get an independent review before you commit.
- The overrun figure is a guess. Underestimating and coming back for more costs time and money. Get a proper cost-to-complete.
- There’s a builder dispute behind it. If the “overrun” is a disputed variation, legal advice and adjudication may be the better first step.
- The construction lender will extend. If it’ll increase the facility on acceptable terms, that may be cheaper.
What it costs (without the guesswork)
Every loan is priced on its own security, LVR, term and exit; the aim is the sharpest price the deal supports. You’ll see interest, which can be paid up front, rolled into the balance or paid monthly; an assessment fee specific to your loan, printed in the Letter of Offer; and the solicitors’ and registry charges to put the security on and take it off. The security property is assessed directly, with no formal valuation required, so the project isn’t kept waiting on a report.
Illustrative example: topping up equity so draws resume
Illustrative: a Logan developer is building eight townhouses with six pre-sold. Frame, roofing and drainage prices push the cost to complete $620k above what the construction facility can cover, so the lender stops draws. The developer owns two completed rental townhouses from an earlier project, worth about $1.3m together with $360k owing. At an illustrative 70% LVR band across both, total secured debt could reach about $910k, leaving room of about $550k. The developer adds $120k of savings.
| Item | Amount |
|---|---|
| Second mortgage over the two rentals | $540,000 |
| Less illustrative allowance for 9 months’ capitalised interest | $(28,000) |
| Less fees and security registration | $(12,000) |
| Net funds | $500,000 |
| Plus developer’s savings | $120,000 |
| Contributed to the project to restore cost-to-complete | $620,000 |
Draws resume, the build finishes and the six pre-sales settle. The private loan is repaid from the first settlements, and the two unsold townhouses are refinanced or sold. The figures are round and illustrative only.
Key terms on a stalled build
- Cost to complete: the estimated money still needed to finish the project, compared with the undrawn construction facility.
- Equity top-up: the developer’s extra contribution a construction lender asks for when the facility no longer covers the cost to complete.
- Progress draw: a staged release of construction finance after work is inspected; we don’t provide these.
- Payment claim: a contractor’s claim for a progress payment under security of payment laws.
- Payment schedule: the written response saying how much will be paid and why, due within strict business-day limits.
- Adjudication: a fast statutory process for deciding disputed payment claims.
Documents you’ll need
- The construction lender’s letter setting out the equity required
- The quantity surveyor’s cost-to-complete report
- The building contract and any variations or payment claims
- Sales contracts and the expected settlement schedule
- For each finished property you’re offering: title search or details and the latest statement for any loan on it
- ID for each person signing, plus the company or trust deed if an entity borrows
How fast can an overrun be funded?
A decision and settlement within 24–48 hours can be possible for up to $5m when the paperwork is complete, and smaller top-ups from $20k to $250k can be possible on the day. If the problem is your builder’s insolvency, start with what to do when your builder collapses. After completion, unsold stock can be carried with residual stock loans. Would you rather sell a finished property than borrow against it? Read bridging until a property sells. And if your construction bank is the one declining, refinancing when the bank says no explains the alternatives. Trades businesses can read our construction and trades page, and South-East Queensland developers can read about private lending in Brisbane.
Project paused over a shortfall? Send us the cost report and your completed property and a specialist will tell you what can be funded.
Build over budget? See if you qualify
An enquiry is free and doesn’t involve a credit check. Your project stays with one direct lender rather than being shopped around, and a specialist who understands development reviews it. fundU, the direct lender behind this site, lends against completed property only.
Tell us the overrun, the lender’s requirement, the sales position and every loan on the property you’re offering. Clear numbers at the outset let us give you an answer you can act on before the next payment claim. Start your enquiry.
Frequently asked questions
My eight-townhouse project in Logan is $620k over budget after a frame and roofing price rise. The construction lender says it won't release the next draw until I put in the shortfall. I own two completed rentals. Can you help?
Yes, if the rentals have the equity and the project's sales can repay you. A first or second mortgage over the rentals can provide a lump sum to cover the shortfall, which you then contribute so the construction lender resumes drawing. We don't lend on the townhouse project itself or make progress draws.
Why won't you just fund the rest of the build?
Because we aren't a construction lender. Construction loans release money in stages against completed work and need site inspections and quantity surveyor reports. Our loans are a single sum secured on completed property, which is why they can be arranged quickly.
A subcontractor has served a payment claim I can't pay in full. How long do I have?
It depends on the state and the contract. In NSW, if you don't intend to pay the full amount, a payment schedule must be given within 10 business days after the claim is made, or sooner if the contract says so. In Queensland it's 15 business days, or earlier under the contract. Get advice immediately.
What happens in Queensland if I don't respond to a payment claim?
The QBCC says failing to respond may be an offence under the BIF Act, and not paying the full claimed amount by the due date without a payment schedule is an offence with a penalty of up to 100 penalty units. The claimant may also suspend work, start a subcontractor's charge or sue for the debt.
Can I fund a variation the builder is claiming?
Yes, if it's a genuine project cost and your exit supports it. Have your solicitor or quantity surveyor check the variation first, because paying a disputed claim to keep the peace can be expensive.
How do I know how big the overrun really is?
Get a current cost-to-complete from your quantity surveyor or the construction lender's monitor, plus a contingency. Borrowing for half the gap and coming back later costs more than sizing it properly once.
I'm the builder, not the developer. Can I use this?
Builders can borrow against completed property they own to cover cash flow pressure on a job, such as paying trades while waiting on a delayed progress payment. Our builder funding page covers that in more detail.
What if the project's sales won't cover the overrun?
Then the overrun has eaten into your margin, and the loan needs a different exit, such as selling or refinancing the security property. If the project can't repay you at all, borrowing more may only enlarge the loss. Get an independent feasibility review.
My builder has gone into administration mid-build. Is that the same problem?
It's related but different. A builder's collapse usually means re-tendering the remaining work, which often costs more. Our guide on what to do when your builder collapses covers the steps, and this page covers funding the extra cost.
Can interest be capitalised until the project settles?
Yes. Interest can be prepaid or capitalised, arranged per deal, so there may be nothing to pay monthly while the build finishes.
How long can the loan run?
A private first mortgage can run for 1 to 24 months; second mortgages and caveats are typically shorter. Set the term to the realistic completion and settlement date, with a buffer for registration and delays.
Does the construction lender need to agree?
Your construction lender's documents may restrict other borrowing by the developer or require it to be disclosed. Because our security is your other completed property, not the project, there's usually no clash, but check your facility terms.
How quickly can the shortfall be funded?
With a complete file, the money can be possible within 24–48 hours for amounts up to $5m, which keeps trades on site.