The Loan Partner lends the required equity cash or equity to the developer so they they can borrow the balance of funds required to complete the project from a bank. The loan partner is not part of the project and takes no part in the outcome of the project.
Let's see how this works
Gary has $100,000 in savings sitting in his term deposit earning 0.25% monthly. Unfortunately this is next to nothing these days with interest rates so low. After 12 months in the term deposit Gary would have $103,041.60 in his account which is effectively a 3.04% PA interest rate. If we then take into account inflation, which reduces your dollars buying power over time, and bank fees his savings account is actually going backwards.
Gary decides to invest in a property development project as he knows a bit about property and how it works after speaking with the developer. Gary is happy with their previous experience, the due diligence on the preposed project and he reviews the loan documents in consultation with his property lawyer. The developer is offering 20% PA on Gary's money for an agreed term of 12 months. Gary's money, along with another investor money, are used during the property to pay for things like purchase costs, loan interest, architect and other professional fees, council fees and other construction costs to see the project through to completion. The finished product are put on the market and sold. Gary signs the loan agreement and places a Caveat on the project title as added security, over and above the loan agreement documentation. A Caveat registers Garys financial interest on the property title.
Gary receives regular updates on the progress of the project. At the end of the property development project the houses are sold and everyone gets paid back their investment and then their interest/profit.