Bank Cuts the Construction Loan – How a Development Still Got Started
Key facts
- Area
- Finance
- Project
- 24 condominiums, CHF 18 m
- Problem
- Bank cuts construction loan, gap of CHF 1.8 m
- Solution
- CHF 1.2 m mezzanine and pre-sales
- Result
- Construction starts without selling equity
Names, figures and details have been changed to protect confidentiality.
The building permit hangs framed in the office. Sandra L. waited three years for it, through objections, a redesign of the project and countless meetings with the municipality. The contractors are ready, the builder has sent his crane schedule, and groundbreaking is set for early March. Three weeks before, a letter arrives from the bank. Because of higher construction costs and new regulatory requirements, the loan-to-cost ratio will be reduced from 70 to 60 percent. The bank would be happy to discuss it.
A sound project and a gap that will not go away
On the site of a former nursery garden, the private developer is planning 24 owner-occupied flats. Total costs are CHF 18 million. The project is well calculated, the location is in demand, and six flats are already reserved. Nobody doubts the quality of the project, not even the bank.
Even so, ten percentage points of loan-to-cost tear open a gap of CHF 1.8 million. Fresh equity is not available at short notice, because Sandra L.’s money is already tied up in the land and the planning. Every month of delay costs construction interest, and it costs the trust of prospective buyers, some of whom have already given notice on their rented flat or sold their house.
How the gap arises
Financing of the total costs of CHF 18 million
FiPAXThe project has not changed. The bank’s requirements have.
A problem many developers share
Sandra L. is not alone. The final Basel III rules have applied in Switzerland since 2025, and banks must hold significantly more capital against project finance. A study by MoneyPark and Lucerne University of Applied Sciences published in September 2026 expects lending capacity for development and project finance to fall by 78 percent. Developers feel this in loan-to-cost ratios, margins and pre-sale requirements.
An investor gets in touch within days. He would close the gap in exchange for a 40 percent stake in the project. For Sandra L. that would mean giving up a large share of the profit after three years of work, for a problem that might only last a few months. Before signing, she calls FiPAX.
A dossier the bank can understand
FiPAX starts where the bank has doubts. The cost plan is rebuilt using current contractor quotes instead of estimates, with a reserve for inflation. The marketing status is documented flat by flat. Then come stress tests: what happens if construction costs rise another five percent? If the sale of the last flats is delayed by a year? If sale prices fall by ten percent?
The result is a dossier written not for a presentation but for a credit committee. It shows that the project covers its costs even in the bad scenarios. And it can be shown to more than just the house bank.
The bank never said the project was bad. It said it could no longer carry it in this form. That is a difference you can work with.
Three building blocks instead of one investor
In parallel with the house bank, FiPAX presents the dossier to four other lenders. Not to switch banks, but to find out what the market will actually provide for this project. Two answers come back quickly, and they confirm what the stress tests show: the project is financeable, just not entirely with conventional debt.
Most of the gap is therefore closed with subordinated capital. A specialist mezzanine lender provides CHF 1.2 million, ranking behind the construction loan, with a term running until the last flats are sold. It is more expensive than a bank loan, but Sandra L. does not give up any equity and keeps control of her project.
For the remaining CHF 600,000, FiPAX relies on the strongest lever a developer has: sold flats. The bank agrees to increase its loan again once eleven flats have been notarised. Over the following weeks, reservations turn into purchase contracts. A notary sets aside two afternoons a week for the project. After just under four months, the eleventh flat is notarised.
Pre-sales as leverage
Share of the 24 flats
FiPAXEvery notarised pre-sale lowers the bank’s risk and with it the cost of financing.
How the gap was closed
Financing of the total costs of CHF 18 million
FiPAX
Dearer than the bank, cheaper than a partner
The mezzanine capital costs around CHF 250,000 in interest and fees, spread over the short period until the flats are sold. An equity partner would have demanded 40 percent of the development profit for the same amount. With an expected profit of around CHF 2.2 million, that would have been almost CHF 900,000, permanently and with no say over the timing of the exit.
What closing the gap costs
Comparison of the two options in CHF
FiPAXThe short term makes the more expensive capital the cheaper solution.
The outcome
Groundbreaking takes place in August, around five months later than planned, but without Sandra L. having to sell a stake to an investor. The delay costs construction interest and nerves, but it jeopardises neither the project nor the buyers. Eighteen months later, all 24 flats are sold and the subordinated capital has been repaid in full.
For her next project, Sandra L. is planning pre-sales as part of the financing from the outset, not as a task for later.
Is your project facing a similar question?
When the bank cuts the loan-to-cost ratio, the fastest way out is rarely the cheapest. With a bankable dossier, the right capital mix and pre-sales as leverage, a gap can often be closed without sharing the project.
Talk to us. The initial consultation is without obligation.
Out of respect for our clients’ confidentiality, names, figures and other details have been altered or are illustrative.