Financing a development does not require choosing between a bank and alternative capital: in many projects the most efficient answer is to combine them. This comparison summarises what each brings and when it makes sense to use both.
Quick comparison
| Bank development loan | Alternative finance | |
|---|---|---|
| Cost | Lower: Euribor-linked margin plus fees | Higher: can be double-digit depending on risk and structure |
| Amount vs. cost | Approx. 60–75% | Complements the bank to reach higher levels when combined |
| Pre-sales | Usually required (30–50%) before drawdown | Much more flexible; not a general requirement |
| Security | Mortgage and often personal guarantees | Security over the project or the company; varies by deal |
| Speed | Weeks to months of analysis | Normally faster, once documentation is complete |
| Asset types | Standard residential, developers with track record | Also hotels, mixed-use, land or early-stage projects |
The tiered structure
The usual combination splits the project into tranches: senior bank debt as the base, a complementary tranche (mezzanine or alternative debt) and developer equity. The bank provides the cheapest part; alternative capital covers what the bank will not finance, and the developer commits less equity. The trade-off is coordinating terms between lenders: who is paid first, what security each shares and what drawdown schedule applies. Careful structuring avoids conflicts between tranches.
When to combine
- When available equity is below what the bank requires.
- When you want to start construction before reaching the bank's pre-sales threshold.
- When the project or location sits poorly within standard bank criteria.
When the bank alone is enough
If the developer has enough equity, advanced pre-sales and a track record, bank finance alone is usually cheaper. Adding alternative capital raises the cost and only pays off if it enables a project that would not otherwise happen, or frees up capital for another one.
What an intermediary does
An intermediary organises the project information, decides which lender fits each tranche and coordinates the process. It does not replace the developer's decision or each lender's criteria. At iberfund we charge nothing until the transaction closes: the success fee is 2% and is payable only if the finance is signed.
Frequently asked questions
Is it more expensive to combine bank and alternative capital?
The alternative tranche costs more than the bank tranche, so the blended cost rises. It pays off if it enables a project that would not be viable with bank debt alone, or reduces the equity needed so it can be used elsewhere.
What is mezzanine debt?
A tranche of debt subordinated to the senior bank debt: it is repaid after the bank, so it carries more risk and a higher cost, and it covers part of the cost the bank does not finance.
Do I need pre-sales to access alternative finance?
Not as a general requirement. Each fund or platform sets its own criteria, but they are more flexible than banks on this; what they do assess is the project, the security and how it will be repaid.
The figures in this guide are indicative market ranges: they change with timing, lender and developer profile. Every transaction is assessed individually and this page is not an offer of finance.
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