Every time I meet a real estate developer who is looking to fund their next project, the conversation starts in the same place. Bank or NBFC. Which one should I approach, and who will give me the best rate?
I get it. These are the familiar names. SBI, HDFC, Piramal, Godrej Capital. You know someone there, or your CA does. The process is known even if it is painful. So the instinct is to start there.
But over years of working with developers across Pune and beyond, I have seen how limiting this instinct can be. Developers who default to bank-or-NBFC thinking often pay more than they need to, borrow at the wrong stage, or leave viable projects unfunded simply because they do not know what else is on the table.
The capital stack for a real estate project is much wider than most people realise. And different parts of it are right for different stages of the same project. Getting this sequencing right is honestly one of the most valuable things we do at FINKOI.
Why Banks Cannot Always Be the Starting Point
Let me be direct about what banks and NBFCs actually need before they say yes.
They need collateral in a lendable form. They need cash flow coverage. They need a promoter with a clean track record and at least one completed project. They want RERA registration. They want approved layout plans. Ideally they want pre-sales traction too.
In other words, they want evidence that your project is already substantially de-risked before they put money in. Which means they are largely unavailable at the stages where you need capital the most, specifically land acquisition and early construction before approvals come through.
I have seen developers spend four months running after a bank facility for a land-stage deal. The bank was never going to say yes. The right capital for that stage was sitting elsewhere, and no one had told them.
The Full Picture: What Else Is Available
Senior Debt from Banks and NBFCs
This is still the right instrument once the project has crossed certain thresholds. Lowest cost of capital, but the highest entry bar. Banks will typically finance 50 to 65% of project cost in residential construction once approvals are in place and some pre-sales exist. You still need to fund the rest from somewhere, but this is usually the anchor of the stack.
Promoter Capital and Private Equity
Your own equity sits at the bottom of the stack. Above it is where private equity comes in, either at the platform level where a PE fund takes a stake in your business entity, or at the project level where they back a specific deal in exchange for profit participation or a preferred return.
The big difference from debt is that equity does not create a fixed repayment obligation on a fixed date. For a developer with a strong project but thin working capital, the right structured equity deal can get things moving without the cash flow pressure that an EMI schedule creates.
Mezzanine Financing
This one does not get talked about enough in conversations I have with smaller developers. Mezzanine sits between senior debt and equity in the repayment waterfall. AIFs, private credit funds, and larger family offices typically provide it.
They take on more risk than a bank, accepting less collateral coverage and a subordinate position, and they price that accordingly. Returns usually sit in the 18 to 24% IRR range, structured as interest or partly as profit participation.
When does it make sense? When you have maxed out your senior debt capacity but still have a funding gap. Rather than dilute your equity permanently by bringing in a PE partner, mezzanine lets you plug the gap at a fixed cost. It is expensive, yes. But on a project where the economics are strong and you just need to complete it, it can be the right call.
The condition I always check first: do the project numbers actually work at 22% cost of capital for that slice? If the project IRR is strong enough, yes. If not, we need to find another way.
Joint Development Agreements
Of everything I have listed here, JDAs are the instrument I see underused the most. And they are genuinely powerful.
In a JDA, the landowner puts in the land. The developer brings construction capital, approvals, and execution. At completion, they split the units or revenue at an agreed ratio.
Think about what that means financially. The largest single cost in any real estate project, which is land acquisition, is funded without any debt or equity dilution. The developer takes no upfront capital commitment on the land at all.
Beyond the economics, a well-structured JDA lets the developer retain control of the project. Unlike a PE joint venture where the fund insists on governance rights and approval thresholds, a JDA with a landowner is usually simpler. The landowner wants their share of units. They are not trying to run the project.
The catch is credibility. Landowners will only do this with developers who can demonstrate that they actually complete and deliver. If you have two or three projects behind you, even modest ones, you have something to show. That track record is worth more than any balance sheet to a landowner evaluating whether to give you their land.
Customer Advances and Pre-Sales
Theoretically the cheapest capital in the entire stack. A homebuyer paying a booking amount is giving you capital at zero cost.
RERA changed the math here in an important way. The requirement to deposit 70% of collections into a designated escrow, accessible only as construction progresses, means you cannot freely deploy pre-sale money across the project. Only 30% of what you collect flows freely.
But that 30% still matters enormously. Developers who launch well and sell early, before or during excavation, meaningfully reduce how much they need to borrow from institutional sources. I have seen early pre-sales reduce the required bank facility by 20 to 30% on a mid-sized project. That is a big number.
The implication is simple: do not treat launch timing as a pure marketing decision. Early launches that generate real pre-sales also reduce your cost of capital. It is a financial lever.
Alternative Investment Funds
Category II AIFs regulated by SEBI have grown into a serious capital source for real estate over the last five years. They are pooled vehicles that raise money from institutional and high-net-worth investors and deploy it into projects through structured debt or equity.
What makes them useful is flexibility. They operate outside the constraints that banks face, no priority sector requirements, no NPA provisioning norms, no standard credit policy template. So they can lend at higher LTVs, at earlier project stages, and with covenants that are negotiated rather than taken from a standard playbook.
The trade-off is cost. AIF capital typically runs 16 to 22% depending on the project risk. But an AIF that will lend 70% LTV against a project that has partial approvals is filling a gap that no bank in the country will touch at any rate. For the right stage and the right project, this is extremely valuable.
The SWAMIH Fund
This one deserves a section on its own because I genuinely believe most developers who should be accessing it are not.
SWAMIH is a government-backed stress fund set up after the NBFC crisis of 2018-19 left thousands of residential projects stalled across the country. It provides last-mile financing for projects that meet certain criteria. RERA registered. Net-worth positive, meaning project assets exceed project liabilities. At least 50% complete. And in the affordable to mid-income segment, broadly under ₹2 crore per unit depending on location.
The cost of SWAMIH capital is close to regular senior debt. That is what makes it remarkable. This is not expensive rescue capital. It is reasonably priced capital specifically designed for the stalled-project scenario.
What I tell developers in this situation: SWAMIH is not a last resort. It is the instrument that was purpose-built for exactly your problem. The qualification bar is lower than most people assume. I have helped developers access SWAMIH on projects that looked far more distressed than the eligibility criteria might suggest.
The SWAMIH Fund has sanctioned over ₹15,000 crore across hundreds of stressed projects since 2019. Most developers who qualify have not approached it because they either do not know it exists or assume their project is too distressed to qualify. In my experience, the bar is lower than you think.
Lease Rental Discounting
This one is relevant only if you have completed commercial assets, office space, retail, logistics. But if you do, LRD is a genuinely efficient capital instrument.
The bank takes an assignment of your future rental receivables from a creditworthy tenant and lends against the discounted value of that income stream. Because repayment comes from contracted rent rather than project cash flow, the risk is lower and it is priced closer to working capital rates.
For a developer building a mixed portfolio, LRD on the commercial side can be used to retire expensive construction debt on the residential side. I have structured this across a couple of mandates and the interest saving was significant.
Getting the Sequencing Right
Each of these instruments has a stage where it makes sense. The mistake I see most often is not using the wrong instrument. It is defaulting to one instrument and trying to make it cover stages it was never designed for.
A reasonably optimised capital plan for a residential project might look like this:
At the land stage, either a JDA so the developer puts no capital into land at all, or private equity or family office capital on terms that reflect the early-stage risk. Once approvals start coming through, the developer's own equity and possibly a bridge from a private credit fund. Post-approval, a bank or NBFC facility gets sanctioned but not yet drawn, structured on milestone tranches. During construction and launch, customer pre-sales provide the 30% free flow, the bank facility draws milestone by milestone, and mezzanine fills any gap the senior facility leaves. Near completion, if there is a commercial component, LRD helps retire the most expensive debt.
This is not a formula. Every project is different. But the logic is consistent: match the capital source to the project stage, not the other way around.
What I Actually Do
A broker finds you a lender. That is useful, but it is a transaction.
What I do starts before any lender conversation. I look at the project stage by stage. What capital does each stage actually require? What are the realistic sources for each stage? What does the total cost of the stack look like across the full project lifecycle?
From there, I go to the lenders I know well, which after enough years in this business is a reasonably deep list, knowing which institution's appetite fits this project, at this stage, in this market, right now. The fit matters more than the relationship. A lender who is not set up for your project profile will waste everyone's time no matter how warm the introduction.
And once the capital is in place, I stay involved. Tranche coordination, compliance management, lender communication. The project does not end at sanction. In many ways, the harder work starts there.
The developer who sees capital as a commodity to be purchased at the lowest rate will usually find a loan. But they will often find a loan that does not fit the project. The ones who think about capital as a strategy, layered and sequenced against their specific project timeline, tend to build better. And they tend to need less rescue financing down the line.