Developer Loan: Complete Guide to Real Estate Financing 2025
The developer loan has established itself as one of the most important financial instruments for driving real estate development in Spain. Specifically designed to meet the needs of property construction, it has characteristics that set it clearly apart from conventional financing products.
This comprehensive guide covers exactly what a developer loan is, how it works, the requirements you need to meet, and the strategies that will give you the best chance of securing favourable terms. Whether you are starting out as a real estate developer or are an experienced professional exploring financing alternatives, this information will prove invaluable for your projects in 2025.
*The financial conditions detailed in this post are purely indicative and vary depending on the financial institution, the client's profile, the specific characteristics of the financing, and market conditions at the time of application. The information provided does not constitute a binding offer or a guarantee of obtaining financing.
Table of Contents
- What is a Developer Loan and How Does It Work?
- Key Points of the Developer Loan
- Advantages of the Developer Loan for Builders
- Requirements for Obtaining a Developer Loan
- Typical Conditions in a Developer Loan
- Conclusion: Understanding What a Developer Loan Involves
- Frequently Asked Questions about Developer Loans
What is a Developer Loan and How Does It Work?
The developer loan is a financial product built around the needs of real estate developers and builders throughout the full lifecycle of a project — from land acquisition through to construction completion and unit sales. Unlike other financing arrangements, it is designed to move in step with the entire development process. If you are evaluating this type of financing, we also recommend reading our analysis on whether the developer loan is the right option for your real estate project.
Main characteristics and differences from other products
What sets the real estate developer loan apart is its structure of progressive drawdowns. Capital is released as construction advances, typically following technical certifications that confirm progress on site. This lets lenders manage their exposure, while developers only pay interest on the capital actually drawn.
The LTV ratio — the financing percentage relative to the total project cost, including land and construction — typically ranges between 50% and 70%. This figure varies depending on the developer's financial strength, the location, the project's commercial viability, and the funding source (bank versus private lender).
Unlike a conventional mortgage, the developer loan is structured around the developer rather than the end buyer. Terms are shorter — typically 1 to 4 years, in line with the expected development and sales cycle — compared with the 20–30-year terms of a residential mortgage.
Key Points of the Developer Loan
Fundamental aspects every developer should know:
✅ Financing aligned with the real estate cycle: Designed to track the different phases of development, with progressive drawdowns that optimise cash flow throughout.
✅ The feasibility study is decisive: The quality of this document can account for up to 80% of your success in securing financing.
✅ Flexible conditions: LTV ratios, timescales, and interest rates vary considerably depending on the location, property type, and project stage.
✅ Alternatives beyond traditional banking: The market offers multiple sources of alternative financing with faster processes, though generally at higher cost.
✅ Smart structuring reduces costs: Correct structuring can cut the effective cost of financing by up to 20%, with a direct impact on project profitability.
Step-by-step process of the developer loan
A developer loan typically follows these stages:
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Preliminary study: Submission of the project with a detailed technical, legal, commercial, and financial feasibility study.
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Analysis and approval: The lender assesses the project's viability, the developer's financial standing, and the value of the security offered.
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Formalisation: Terms are agreed (interest rate, timescales, fees) and the agreement is executed before a notary.
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Drawdowns: Capital is released in stages following certifications that confirm construction progress.
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Pre-sales and subrogation: Buyers can take over portions of the loan, converting them into individual residential mortgages.
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Redemption: The loan is repaid once all units are sold or at maturity.
One valuable feature is that interest accruing during construction can be capitalised — added to the principal and settled at the end — which preserves cash flow during the critical phase when costs are high but revenues have yet to materialise.
Advantages of the Developer Loan for Builders
1. Financing aligned with the project cycle
A key advantage is how closely the structure tracks the different phases of real estate development:
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Initial phase: Drawdowns are sized to match early-stage requirements around land purchase and preliminary works.
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Construction phase: The loan releases funds in line with site certifications, keeping pace with actual progress on the ground.
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Sales phase: Buyers can subrogate portions of the loan, enabling gradual repayment as units are sold.
This synchronised structure can reduce total financing costs by up to 25% compared with conventional arrangements.
2. Greater flexibility than traditional banking
Financing for real estate developers has evolved significantly. Specialist lenders and investment funds now offer:
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Project-focused criteria: Greater weight placed on the project's viability rather than solely on the developer's credit history.
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Tailored negotiation: Terms can be adapted on a case-by-case basis, rather than being confined to standard criteria.
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Faster turnaround: Substantially shorter response times. At GrupInversor we obtain initial assessments within 24–48 hours through private financial institutions.
Multiple studies confirm that developers regard flexibility of terms as one of the most important factors when selecting a financing source.
3. Possibility of financing multiple phases
The developer loan can cover aspects that other financing structures typically do not:
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Land acquisition: Can fund this initial cost, which typically represents 30–50% of the total project budget.
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Licence and permit costs: These preliminary expenses — potentially up to 8% of the budget — can frequently be included.
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Contingencies and cost overruns: The flexible structure allows drawdowns to be adjusted to cover justified budget variances.
If you operate in the construction and real estate development sector, understanding these advantages is essential to optimising the financial structure of your projects.
GrupInversor has successfully structured projects in Barcelona, Madrid, Valencia, Alicante, and the Balearic Islands drawing on this broad financing capability. One notable example was a development in Sitges where we secured a developer loan that included the rehabilitation of heritage elements — an aspect that conventional banks had treated as high-risk.
Requirements for Obtaining a Developer Loan
Required documentation
A thorough and well-organised application file is critical for demonstrating professionalism and financial credibility:
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Corporate documentation: Articles of association, powers of attorney, tax registration, relevant board minutes, and shareholder structure.
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Financial documentation: Annual accounts, tax returns, and confirmation that the company is current with tax and social security obligations.
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Project documentation:
- Land title or purchase agreement
- Planning certificate and building licences
- Approved architectural plans
- Detailed construction budget
- Build and sales programme
- Market study and financial feasibility plan
Planning your next real estate development? Contact us today for a free initial assessment. Our team will respond within 24 hours with an evaluation of the financing options available for your specific situation.
Typical Conditions in a Developer Loan
Financing percentage and terms
The LTV ratio typically falls between 50% and 60% of the appraised value:
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Key variables: Location, property type, developer experience, and secured pre-sales.
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Current picture: The average LTV on loans originated in 2025 is around 50–60%, though at GrupInversor we have structured deals at 70% for strong projects with pre-sales exceeding 30%.
Terms are tied to the expected project duration:
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Typical length: 24–48 months (18–36 months for construction, 6–12 months for sales)
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Extension options: Generally up to 12 additional months, subject to specific fees.
Capital disbursement
The drawdown structure typically follows this pattern:
- 10–20% upfront for land acquisition (where applicable)
- 70–80% during construction, released against certifications
- 5–10% upon issue of the final completion certificate
During construction, a principal grace period usually applies — interest is paid only on the capital drawn to date.
Conclusion: Understanding What a Developer Loan Involves
The developer loan is far more than a source of capital: it is a strategic tool that, correctly structured, can determine the outcome of any real estate project.
In today's competitive market, the difference between a profitable development and a difficult one often comes down to financing terms. The right loan duration, synchronised drawdowns, competitive rates, and well-structured security directly shape profitability.
With more than 20 years of experience, GrupInversor understands the specific demands of each project and works to secure the best possible terms. Our market knowledge and network of relationships allow us to structure bespoke solutions even for complex projects.
Planning your next real estate development? Contact us today for a free initial assessment. Our team will respond within 24 hours with an evaluation of the financing options available for your specific situation.
Frequently Asked Questions about Developer Loans
What is the maximum financing percentage I can obtain?
Developer loans currently finance between 50% and 60% of the appraised value as a general rule. The maximum depends on the location (more favourable in prime markets), property type, the developer's financial strength, and secured pre-sales. At GrupInversor we have structured transactions at LTVs of up to 70% by combining bank and private financing.
What requirements are essential for the application?
The key requirements are: ownership of the land or a signed purchase agreement, approved architectural plans, licences (at least in progress), a detailed budget, a feasibility study, and a sales programme. The differentiating factor is typically the quality of the feasibility study, which must make an objective case for the project's profitability.
Is it possible to finance land purchase?
Yes. Land purchase and construction financing can be combined within a developer loan. While traditional banks usually cap land financing at 50% of the land value, alternative sources can cover higher percentages. The key is presenting a well-defined project with complete technical studies and, ideally, pre-sales or letters of intent.
What alternatives exist if a bank rejects my application?
If a traditional bank declines, several alternatives are worth exploring:
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Real estate investment funds and family offices: More agile processes, though at higher cost.
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Mixed financing: Combining private investors for certain phases with bank financing for others.
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Real estate crowdfunding: A growing option for smaller-scale projects.
At GrupInversor we analyse each case that has been turned down, identify the weak points, and either restructure the application or redirect it towards the most suitable sources. For a broader overview of business financing, we also recommend our article on keys to obtaining financing for your business in Spain in 2025.
