Progress Payment Structure for Construction Loans

A progress payment is a staged payment made during a construction project, typically linked to key build milestones such as slab, frame, lock-up and completion. In Australia, progress payments are a critical part of how construction loans work, ensuring funds are released gradually as work is completed rather than in a single lump sum.

This page explains how a progress payment works, who it applies to, how progress payments are structured, and what borrowers should understand before signing a building contract or applying for a construction loan.

How a Progress Payment Works in Australian Construction Projects

A progress payment structure allows payments to be released in stages as construction progresses. Instead of paying the builder upfront, funds are paid only once a specific stage of work has been completed and verified.

For borrowers using a construction loan, the lender pays the builder directly after approving each progress payment claim. This protects both the borrower and the lender by linking payment to completed work.

Progress Payment Stages Commonly Used in Australia

Most residential builds in Australia follow a similar progress payment schedule, often aligned with HIA guidelines.

Typical HIA Progress Payment Schedule

A standard HIA progress payment schedule usually includes:

• Deposit

• Base or slab stage

• Frame stage

• Lock-up stage

• Fixing stage

• Completion stage

Each progress payment represents a percentage of the total build cost, agreed upon in the building contract.

Why Progress Payments Are Used Instead of Lump Sum Payments

Progress payments reduce risk and improve cash flow management during construction. Rather than releasing the full amount upfront, payments are matched to actual progress on site.

Key reasons progress payments are used include:

• Reduced financial risk for borrowers

• Protection against incomplete or defective work

• Better oversight of construction quality

• Controlled release of loan funds

Who Uses a Progress Payment Structure?

A progress payment arrangement is commonly used by:

• Owner-occupiers building a new home

• Property investors constructing investment properties

• Knock-down rebuild projects

• Major renovations requiring staged funding

Any borrower using a construction loan will almost always deal with progress payments.

Progress Payment and Construction Loans Explained

When a lender approves a construction loan, the funds are not released all at once. Instead, each progress payment is assessed and approved before being paid to the builder.

How Lenders Assess Each Progress Payment

Before approving a progress payment, lenders typically require:

• A progress payment invoice from the builder

• Confirmation that the stage has been completed

• In majority of cases, an inspection or valuation

Interest is usually charged only on the amount drawn, not the full loan limit.

Progressive Payment vs Progress Payment: Is There a Difference?

The terms progress payment and progressive payment are often used interchangeably in Australia. While “progress payment” is the more common industry term, both refer to staged payments made throughout construction.

What matters most is the agreed payment schedule in the building contract, not the terminology used.

Benefits of a Progress Payment Structure for Borrowers

A properly structured progress payment system provides several advantages:

• You only pay for completed work

• Reduced interest costs during construction

• Greater control over builder performance

• Clear financial milestones throughout the build

This staged approach aligns payments with real progress, improving transparency and accountability.

Important Progress Payment Considerations Before Signing a Contract

Before committing to a progress payment schedule, borrowers should review:

• The percentage allocated to each stage

• Whether stages align with lender requirements

• The deposit amount and timing

• Builder claims and inspection processes

A poorly structured progress payment schedule can lead to cash flow issues or lender delays.

Common Progress Payment Mistakes to Avoid

Many construction delays and disputes arise from progress payment misunderstandings.

Common issues include:

• Stages weighted too heavily toward early payments

• Builders claiming progress payments prematurely

• Borrowers approving payments without verification

• Misalignment between lender policy and contract terms

Understanding how progress payments work helps avoid costly errors.

Progress Payment Timing and Cash Flow During Construction

Timing is critical with progress payments. Delays in inspections, paperwork, or lender approvals can slow down the build.

Borrowers should ensure:

• Documents are submitted promptly

• The builder provides clear stage completion evidence

• Expectations are set early with all parties

Clear communication helps keep progress payments moving smoothly.

Get Expert Help With Your Progress Payment Structure

Understanding how a progress payment works can make a significant difference to your construction experience. The right advice ensures your payment schedule aligns with lender requirements, builder expectations, and your cash flow.

Whether you’re building your first home or managing a complex construction project, professional guidance can help you avoid delays, reduce risk, and move through each stage with confidence.