Credit conditions for residential builders and developers have now tightened for 18 consecutive quarters.
But according to a recent article from the National Association of Home Builders, tightening isn’t showing up only through higher interest rates.
Among builders and developers experiencing tighter conditions, 47% said lenders were lowering loan-to-value or loan-to-cost ratios. The same percentage reported that lenders were refusing to make relationship loans—financing decisions that consider a builder’s history and broader relationship with the lender.
More than half said lenders were requiring personal guarantees or collateral unrelated to the project. That can expose more than the property being financed. It can potentially place other assets—and the broader business—at risk.
The cost of credit is rising, too. Although contract rates were mixed, upfront points increased across all four categories of land and construction financing tracked by NAHB. Effective rates were at least 0.6 percentage points higher than at the end of 2025.
Together, these conditions can limit how far a builder’s capital will go. Lower leverage requires more cash per project. More restrictive underwriting can reduce the number of starts a lender will support. Broader collateral requirements can make accepting additional financing uncomfortably risky.
The result is what we call the Capital Capacity Gap: the gap between what an experienced builder can build and what existing lenders are willing or able to finance. A builder may have the land, trade relationships, and operational capacity to build 12 homes—but a bank is willing to finance only 10.
Banks remain an important source of financing for builders. But their lending capacity does not always match a builder’s operating capacity. That is where alternative capital can play a strategic role—not necessarily by replacing the bank, but by financing qualified projects beyond the bank’s limits.
Because sometimes the opportunity isn’t beyond the builder’s capacity—it’s beyond the lender’s.
Read the full article: Cost of Credit for Builders Up Since the End of 2025
