The history matters less than the surprise.
Written for: Business owners and property investors
Most business owners with a credit issue assume the answer is no before they ask. A default from a bad year, arrears during a rough patch, an ATO debt that got away: at a bank, any one of these can end an application on the spot.
Private and non-bank lenders look at it differently. The history still matters, but it's weighed alongside the property, the exit and the explanation. For many lenders in this market, a credit issue is a question to be answered, not a reason to stop reading.
Bank credit decisions are built for volume. Scoring models and policy rules sort applications quickly and consistently, and a default or a run of missed payments is exactly the kind of signal those systems are designed to catch. That isn't a judgement on the borrower. It's how a process that handles enormous numbers of applications stays consistent.
The files themselves have also become more complete. Since comprehensive credit reporting began in Australia in 2014, a personal credit file can show month-by-month repayment history on many accounts, not just defaults. And the law now allows the ATO to report certain overdue business tax debts to credit reporting bodies. For business owners, whose personal credit is usually part of the picture through a director's guarantee, there's less room than ever for an issue to go unnoticed.
If a bank has already declined, the reasons are covered in more depth in Can I Get a Loan If the Bank Said No?
Banks lend against rules. Private lenders lend against the deal. They still read the credit file, but it's one input among several, and often not the one that decides the outcome.
The security. Property with a clear value and real equity carries much of the weight. A lender secured well inside the value of a property is less exposed to the borrower's past.
The exit. How the loan will be repaid, and when. A sale, a refinance once the file has recovered, or funds from another transaction can matter more than what happened a few years ago. More on that in Exit strategies explained.
The story. What happened, why, and what has changed. A default caused by a customer going under or a health crisis reads very differently from a pattern of bills left unpaid.
The direction. A paid default, a payment arrangement being met, arrears brought back up to date. Lenders look at where the file is heading, not only where it has been.
The word credit comes from the Latin credere, to believe. Strip away the process and a credit decision is still a decision about whether to believe the borrower's account of the deal. That's why the way a credit issue is handled often matters as much as the issue itself.
Lenders expect to find things, and they look. Before a private loan settles, the checks are usually thorough:
An issue that turns up in those searches after the borrower said nothing looks very different from the same issue raised on day one. Disclosed, it's a risk to be priced and structured around. Discovered, it becomes a question about everything else in the application. If one thing was left out, the lender has to wonder what else was.
This is where deals are lost late. A lender that has spent time on a file and then finds an undisclosed default or tax debt will often step back, and by then the timing that made private funding attractive may be gone.
A credit issue is a fact. A hidden credit issue is a trust issue.
Borrowers with credit issues who do get deals funded tend to share a few things.
Everything up front. Defaults, arrears, judgments and tax debts listed at the start, with amounts and dates, before the searches find them.
A short, plain explanation. What happened and what has changed since. Where the business side is involved, a letter from the accountant often adds weight.
A plan. How the issue is being dealt with, and how the new loan fits. Sometimes the loan is part of the fix: clearing arrears, paying out a default or settling a debt so the file can start to recover.
Realistic expectations. Credit issues usually mean higher pricing and more conservative loan sizes. That's the lender pricing risk, and it's part of why these loans are often short term, with a refinance to lower-cost funding once the history has improved.
Whether a particular scenario fits depends on the lender, the security and the detail. Where there are legal, tax or insolvency questions behind the credit issue, a lawyer or accountant is the right person to advise.
Tax debt is one of the most common credit issues business owners face, and it behaves differently from other debts. The ATO has collection powers most creditors don't, including director penalty notices that can make directors personally liable for certain unpaid company amounts. A company's problem can quietly become a director's.
Some lenders focus on exactly this: funding to clear or restructure tax debt, usually secured by property, sometimes through a caveat loan or second mortgage against existing equity. The detail is in ATO debt and specialist lending.
We work with more than 70 private and non-bank lenders and stay across what they're funding right now, including which of them will look at defaults, arrears and tax debt, and in what circumstances. If your scenario fits, we can connect you with the lenders it suits, in the right order, so the deal isn't shopped around. The lender assesses the file and makes the credit decision.
We aim to be in touch within the hour. Once we have what we need, you'll usually know within 24 hours whether there's a credible funding pathway, and if there isn't, why. You can also see what our lenders are funding right now.
We work on commercial and business-purpose loans only. Where a bank is the better fit, or if you need a home loan, personal loan or any other consumer loan, we'll put you in touch with one of our trusted brokers.
This article is general information only. It isn't financial, credit or legal advice and doesn't take into account anyone's particular circumstances. Lending decisions are made by the lender.
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Read article →Private lending explained: what a private lender is, how private lenders differ from banks, who they are, and how they assess a deal on its merits.
Read article →A bank decline isn't the end of the road. Why banks say no, how private and non-bank lenders assess deals differently, and what to do next.
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