In property finance, few phrases get used as often, or understood as loosely, as “skin in the game.”
It’s usually taken to mean how much money a borrower is putting into a deal. But from a lender’s perspective, it’s broader than that.
Skin in the game isn’t just about equity. It’s about alignment, commitment, and downside protection when things don’t go to plan.
Here’s what lenders are really looking at, and what investors should understand before structuring a deal.
It’s not just the deposit
Yes, equity matters. But lenders rarely look at it in isolation.
A “strong” deposit can still sit inside a weak structure if the rest of the deal is fragile.
What lenders are really assessing is:
- How much of the borrower’s own capital is genuinely at risk
- Whether the structure leaves enough buffer for cost overruns or delays
- If the borrower is meaningfully aligned with the project outcome
In other words: is the borrower incentivised to protect the downside as well as chase the upside?
Why lenders care about alignment
From a lender’s point of view, skin in the game is about behaviour under pressure.
When a project runs smoothly, most deals look fine. The real test is what happens when:
- Build costs increase
- Timelines slip
- Sales take longer than expected
- Exit assumptions need to be adjusted
If the borrower has meaningful capital at risk, there’s usually stronger decision-making and more disciplined execution.
If they don’t, lenders may see higher risk of:
- Walking away from the project
- Re-trading the deal late in the process
- Or losing momentum when challenges arise
Different ways “skin in the game” shows up
Equity is the most obvious form, but it’s not the only one.
Lenders also consider:
1. Cash equity in the deal
Direct financial contribution from the borrower or investor.
2. Retained interest in the asset
Long-term ownership or continued exposure post-completion.
3. Personal or corporate guarantees
Additional security that signals commitment beyond the asset itself.
4. Track record and reputation at stake
For experienced developers, reputation can be just as important as capital.
The misconception: More equity = better deal
It’s easy to assume that higher borrower equity automatically makes a deal stronger. That’s not always true.
Excess equity without structure can sometimes indicate:
- Over-leveraging of a single party
- Inefficient capital allocation
- Or projects being pushed through without proper risk planning
What lenders actually want is appropriate equity, not necessarily maximum equity.
The key question is: Does the structure make sense for the risk profile of the project?
Where deals often go wrong
We regularly see deals where the intention is strong, but the structure doesn’t fully support it.
Common issues include:
- Too little buffer for cost overruns
- Unrealistic exit pricing assumptions
- Equity introduced late or inconsistently across phases
- Misalignment between partners in a joint venture
When skin in the game is unclear or uneven, lenders tend to slow down, not because the deal is bad, but because the risk picture is incomplete.
How to structure stronger deals
If you’re preparing a deal for lending:
1. Be clear on total exposure
Not just initial equity, but full financial and operational exposure over the life of the project.
2. Stress-test assumptions early
Build in downside scenarios before the lender does it for you.
3. Align all stakeholders
In joint ventures or multi-investor deals, make sure incentives are consistent.
4. Don’t over-optimise leverage at the expense of stability
The cheapest capital isn’t always the most effective if it increases friction later.
The bigger picture
At its core, skin in the game is less about a number and more about behaviour.
It tells a lender:
- How seriously a borrower is treating the project
- How resilient the structure is under pressure
- And how aligned everyone is if things don’t go exactly to plan
In bridging and development finance, those factors often matter just as much as the rate.
Strong deals aren’t just well-funded, they’re well-aligned.
When lenders can see that everyone involved has meaningful exposure to both the upside and downside, decisions tend to move faster, with more confidence on both sides.
