How to check a builder before your development loan: the due diligence lenders do, done first

Before you sign a building contract for a development, check the builder the same way your lender is about to. Confirm the licence, search ASIC’s records for the company and its directors, look for insolvency notices, make sure the builder’s warranty cover can stretch to your job and talk to recent clients and suppliers. Lenders hold up or decline projects over builder concerns, so it pays to find any problem first.

For a small developer, picking the builder is the single biggest risk decision on the project. The land can be revalued, the budget can be topped up and sales can be delayed, but a builder who collapses halfway through brings everything to a stop.

Why do construction lenders vet the builder so closely?

A construction lender’s security is the project as it stands at any moment. Until the building is finished it’s worth far less than land plus money spent, because a half-built project is hard to sell and costly to complete. If the builder fails, the lender may be looking at a new builder, a new contract, a new budget and months of delay.

So lenders look at the builder almost as closely as they look at you. Typical questions include:

• Is the builder licensed for this class and size of work in this state?
• How many similar projects have they finished, and how recently?
• Can they get home warranty cover for this job on a residential project?
• How many jobs do they have on, and can they handle another?
• Is there anything in public records suggesting financial trouble?

Our main page on construction and development finance notes that lenders increasingly check a builder’s financial strength. That’s because builder failure is a lender’s worst case.

What free checks can you run yourself?

You can cover most of the public-record checks in an afternoon.

Check	Where	What you’re looking for
Company details and officeholders	ASIC’s registers	The company exists, its status is registered, and the directors match who you’re dealing with
Banned or disqualified people	ASIC’s banned and disqualified register	None of the directors appear
Insolvency notices	ASIC Published Notices	No external administration notices for the builder or related companies
Licence	Your state building regulator	Current licence, right class and limits for the job
Home warranty	Your state scheme	Eligibility for your contract value; in NSW, verify a certificate with the HBC Check tool
Financial requirements	QBCC (Queensland)	The builder meets minimum financial requirements

ASIC describes its published notices site as a place for insolvency and external administration-related notices required under the Corporations Act. A builder whose related companies have been through administration recently isn’t automatically a no, but it’s a conversation you need to have.

In NSW, SIRA’s guidance for owners suggests getting the warranty certificate before paying any deposit or work starting, checking the business name on the certificate matches the contract, confirming the licence is current with Building Commission NSW and verifying the certificate number with the online HBC Check tool. In Queensland, the QBCC says contractors must take out home warranty insurance on the owner’s behalf before starting residential work. Our guide to home warranty insurance and construction loans covers how lenders use those certificates.

What should you ask the builder directly?

Public records only tell part of the story. A short, direct conversation fills in the rest:

• How many jobs are underway now, and what size? You want enough work to show demand, not so much that your job waits.
• Can you confirm your warranty eligibility covers this contract? A good builder will answer in writing.
• Who are your main suppliers and subcontractors? Ask permission to call one or two. Slow-paying builders show up quickly in supplier conversations.
• Can I speak to the last two clients who built something similar? Ask about time, variations and communication.
• How do you handle price rises on fixed-price jobs? The answer tells you how they’ve priced risk.
• In Queensland, do you meet the QBCC’s minimum financial requirements? Our guide to QBCC MFR and business loans explains what that involves.

If you’re about to sign with a builder and want a second view on how a lender will see them, send us the details. There’s no credit check to enquire.

What red flags should make you slow down?

• A price well below the other quotes. Ask why. Underpriced jobs are where builders run out of money.
• Pressure for large payments ahead of work. Payments should follow completed, verified stages.
• Reluctance to provide warranty certificates or licence details.
• A brand-new company with an experienced-sounding name but no history. Check who the directors are and what they did before.
• Suppliers who mention slow payment or accounts on hold.
• Unclear answers about current workload.

None of these alone means the builder will fail. Together, they’re the pattern lenders worry about, and they’re often the reason a credit team asks for a different builder.

Even with a builder who passes every check, the way you set up the job can limit the damage if something goes wrong later:

• Match every payment to verified work. Let the lender’s quantity surveyor inspect before each draw, and don’t pay the builder anything outside that process.
• Keep your own records. Dated photos of each stage, copies of every claim and every variation. If you ever need a replacement builder, those records shorten the handover.
• Hold a contingency you control. A replacement builder almost always costs more than the original price for the remaining work. Money set aside outside the loan is what lets the site restart quickly.
• Know your contract exits. Ask your lawyer to walk you through what the contract allows if the builder stops work, and what notice you’d need to give.
• Stay in touch with the subcontractors. Trades who aren’t being paid often stop turning up before anything official happens. A friendly word with the site supervisor or the main subbies can give you weeks of warning.

Lenders like seeing these habits because they reduce the cost and delay of the worst case, even if they can’t prevent it.

Illustrative example: two builders, one lender’s view

Illustrative only. A physio clinic owner is developing a pair of semi-detached homes on a block they own. Two builders quote: one at $1.02m with ten years of similar jobs, the other at $890k, trading for two years under a new company.

The owner runs the checks. The cheaper builder’s directors were previously officeholders of a building company that went into external administration three years earlier, and a supplier mentions accounts being put on cash-only terms. The construction lender’s credit team asks for a guarantee of the cheaper builder’s warranty eligibility and a larger contingency before it will approve.

The owner chooses the more experienced builder, funds the extra cost with a $150k property-secured loan over the clinic’s commercial premises for business purposes, and gets approval without conditions on the builder. The build finishes three weeks late, which is well within the buffer.

What if you’re the builder being checked?

Builders borrowing for their own business face the same scrutiny in reverse. A clean ASIC record, a current licence, healthy warranty eligibility and suppliers who are paid on time all make it easier to win development work and to borrow. Our builder business loan page covers how lenders look at the contractor’s side, and our guide to licences lenders check explains why licence status matters so much.

Builder checked and ready to go? Let’s look at the funding

Choosing a builder carefully is one of the clearest signals you can send a lender. If the right builder costs a little more and you need help with the gap, the deposit or a contingency, we can look at property-secured options from $20k to $5m over residential or commercial property, for business purposes.

Sending an enquiry takes about a minute, with no credit check at the start. We won’t send your details to a pile of lenders who’ll all ring at once. A real person looks at the project, the builder and your security, then calls you. Please give accurate figures for the contract, land value and existing debt, so we can get the right option in front of you from the first conversation.

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