Before you sign: checking your builder before you take out a construction loan

With builder failures still high, checking your builder is as important as checking your finance. This article explains what the latest data shows, what to check before you sign, and why lenders look so closely at who is building the project.

Builder failures remain high

According to ASIC data, 14,152 companies entered insolvency for the first time in 2025–26. Construction was again the hardest-hit industry, with 3,472 construction companies entering external administration or having a controller appointed.

Source: ASIC insolvency statistics, 2025–26.

There's some good news. 2025–26 was the first year since 2020–21 that construction insolvencies fell nationally. However, construction still made up almost a quarter (24.5%) of all insolvencies, far more than its share of businesses.

The next set of figures will look worse. On 25 August 2026, Bathla's collapse put about 540 construction companies into voluntary administration in a single day. See Lessons from Bathla.

Why the builder matters to your lender

A construction loan is paid out in stages as the work progresses. The lender is not just funding a finished property. It's funding a process, and the builder runs that process.

If the builder fails partway through, the borrower usually needs a new builder. Replacement builders often charge more to finish someone else's work, and the remaining loan funds may not cover the cost to complete. The interest clock keeps running while the project stands still. That's why lenders look closely at the builder, the contract and the cost plan before approving a construction loan.

Victoria's rules have changed

Victoria's building regulation has been reorganised. The Building and Plumbing Commission (BPC), which began on 1 July 2025, now handles builder registration, dispute resolution and domestic building insurance in one regulator. For domestic building work in Victoria, Consumer Affairs Victoria sets out these requirements:

• Registration: builders must be registered with the BPC for work worth more than $10,000.
• Contracts: a major domestic building contract is required for all work worth more than $10,000, including renovations, extensions and repairs.
• Home Warranty insurance: from 1 July 2026, it is required for work worth more than $20,000. It covers domestic building work that is incomplete, faulty or non-compliant.
• Scope: Home Warranty cover applies to homes of up to three storeys, and the BPC sends a notice of cover after the contract is signed.
• Registration and insurance are linked: if the builder is not properly registered, you cannot get Home Warranty insurance.

The BPC has also published minimum financial requirements for domestic builders, which include promoting financial stability in the industry as an objective.

Home Warranty insurance is an important protection, but it has limits. It doesn't cover commercial building work, buildings over three storeys or work below the threshold. For many development and commercial projects, there is no insurance safety net, so your own checks matter even more.

Eight things to check before you sign

1. Registration and class. Search the builder on the BPC's practitioner register (or the equivalent regulator in other states). Confirm that the registration is current and that the class covers the work in your contract.
2. Insurance. For domestic work over the threshold, make sure Home Warranty cover is arranged and that you receive the notice of cover. For commercial work, ask what insurance the builder holds, including contract works and public liability.
3. Financial strength. Ask how long the builder has been operating and how many projects it is running at the same time. Search the company on ASIC's registers. A builder that has taken on too many projects can run into cash flow trouble, even if each job is profitable on paper.
4. Track record. Inspect completed projects similar to yours and speak to past clients. Ask specifically about delays, variations and how disputes were resolved.
5. Contract type. A fixed-price contract places more cost risk on the builder. Cost-plus or contracts with many provisional sums leave more risk with you. Read the variation clauses carefully.
6. Payment schedule. Your progress payments should match the stage of work completed and fit the lender's drawdown process. Be wary of large early payments or payment stages that run ahead of the work.
7. Realistic pricing. An unusually low quote can be a warning sign. A builder who underprices to win work may later try to recover the shortfall through variations, or may not be able to finish.
8. Time and contingency. Make sure the construction program allows for weather, approvals and supply delays. Your budget should include a contingency suited to current conditions. New dwelling prices rose 5.4% over the year to August, according to the ABS.

What lenders typically check

Lenders vary, but construction lending commonly involves:

• an independent quantity surveyor's review of the contract price and the cost to complete
• progress inspections before each draw is released
• a review of the building contract, permits and insurance
• an assessment of the builder's experience and capacity for the size of the project
• confirmation that the loan, plus the borrower's equity, covers the full cost to complete, with a contingency.

These steps protect the lender, but they also protect the borrower. An independent cost review before you sign can reveal a pricing problem while you still have time to deal with it.

If something goes wrong

If your builder shows signs of trouble, such as unexplained delays, unpaid subcontractors or pressure for early payments, contact your lender early. A lender that knows about a problem can help plan the response, whether that means more time, a revised schedule or a replacement builder. A lender that only finds out at the next draw has far fewer options.

The Funding Door view

Borrowers who check their builder carefully, choose the right contract and allow a realistic contingency are much better placed to finish on time and within the loan.