Quick answer: Construction finance is a loan to a builder or developer to build a residential or commercial project. It is released in instalments as the work progresses and repaid from flat sales collected through an escrow account. LIC HFL’s Builder & Developer Scheme offers it for 6 months to 5 years, against a mortgage of the land and the building with the promoters’ personal guarantees.
By Vijay Arjun V (B.Pharm, PGDM), authorised LIC HFL DSA since 2002 and DME (Direct Marketing Executive) appointed by LIC HFL. Scheme terms checked on lichousing.com on 29 October 2026.
What is construction finance for builders?
A builder’s money and buyers’ payments rarely arrive exactly when construction needs them. Construction finance fills the gap: a lender funds part of the building cost, releases it stage by stage, and gets repaid as flats are sold. It is different from a home loan, which a buyer takes for one flat.
LIC HFL’s Builder & Developer Scheme
| Construction Finance Loan | Term Loan | |
|---|---|---|
| Purpose | Developing and constructing residential or commercial premises | Business purposes of the builder or developer |
| Term | 6 months to 5 years | 6 months to 3 years |
| Security | Mortgage of the land and the building (superstructure); personal guarantees of partners or promoters; corporate guarantee if required | Mortgage of adequate security acceptable to LIC HFL; assignment of receivables from ongoing projects; promoters’ personal guarantees |
| Release | In instalments, based on the progress of work, funding needs and security cover | In one tranche or in instalments, as agreed |
| Repayment | Through an escrow account | Through an escrow account |
LIC HFL does not publish rates for these loans on its website; they are set case by case. Source: LIC HFL Builder & Developer Scheme page.
How a construction finance loan works, step by step
- Project appraisal. The lender studies the land title, building permission and sanctioned plan, RERA registration, the cost estimate, the builder’s track record and the sales plan.
- Promoter’s contribution. The builder brings in its own share first: land, approvals and early construction.
- Sanction and security. The land and the building under construction are mortgaged to the lender, with the promoters’ guarantees.
- Stage-wise releases. Money is released as each stage is completed and certified, keeping the loan within the security cover.
- Sales through escrow. Buyers’ payments flow into an escrow account, from which the lender is repaid as agreed.
- Closure. As flats are sold and the loan repaid, the lender releases its charge on each sold flat so buyers can register them.
How RERA’s 70% rule fits in
Under Section 4(2)(l)(D) of the RERA Act, a builder must deposit 70% of the money collected from buyers in a separate bank account, to be used only for the cost of construction and land of that project. Withdrawals must be in proportion to the work completed and certified by an engineer, an architect and a chartered accountant. A lender’s escrow arrangement has to work alongside this account, so the project’s cash is used for the project.
What builders need to apply
- Title documents of the land, with encumbrance certificate
- Building permission and sanctioned plans; Telangana RERA registration
- Project report: cost estimate, schedule, sales plan and sales achieved so far
- Financial statements and ITRs of the company or firm, and promoters’ profiles
- KYC of the company, partners or directors
Why project approval for buyers matters as much
Buyers need home loans too. When LIC HFL approves the project for buyers’ home loans (Approved Project Finance), each buyer’s loan is processed faster, which brings sales money in sooner. See APF approval in Hyderabad and why buyers trust LIC HFL approved projects.
Want your buyers to get faster LIC HFL home loans too? See project loan and APF approval for builders.
How the 70% RERA account works, for buyers and builders: RERA escrow account and the 70% rule.
Frequently asked questions
Does LIC HFL give loans to builders?
Yes. Its Builder & Developer Scheme offers construction finance loans (6 months to 5 years) and term loans (6 months to 3 years) to builders and developers.
Can construction finance be used for commercial projects?
Yes. LIC HFL’s construction finance covers developing and constructing residential or commercial premises.
How is a construction loan repaid?
Through an escrow account into which the project’s sales receipts are paid, as agreed with the lender.
Is construction finance the same as a home construction loan?
No. Construction finance is for a builder’s project. An individual building their own house takes a home construction loan.
More: partner with us: builders, agents and channel partners · Telangana RERA project checks · LIC HFL home loans in Hyderabad.
Sources: lichousing.com, Builder & Developer Scheme page (construction finance loan and term loan), checked 29 October 2026; Real Estate (Regulation and Development) Act, 2016, Section 4(2)(l)(D).
Hyderabad Home Loans is run by Elite Financial Services, an authorised Direct Selling Agent (DSA) of LIC Housing Finance Ltd. We are not LIC HFL. Loans are sanctioned solely at LIC HFL’s discretion; rates and fees may change.
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