How private lenders see a deal differently.
Written for: Business owners, property investors and developers
Most people meet private lending the same way. A bank has said no, or can't move in time, and someone mentions a private lender. It can sound like a last resort. It isn't. It's a separate part of the market, with its own capital, its own logic and its own reasons for existing.
The simplest way to understand it: banks lend against rules. Private lenders lend against the deal.
A bank lends its depositors' money, and almost everything else follows from that. Because deposits are protected, banks are prudentially regulated. In Australia that is APRA's job. It sets how much capital a bank must hold, how it measures risk and how much of certain kinds of lending it can take on.
The idea goes back to 1988, when the Basel Committee on Banking Supervision published the first international standard for bank capital. Its core principle still holds: the riskier a loan is judged to be, the more of the bank's own capital has to sit behind it. A loan that ties up more capital earns the bank less on that capital, so the bank has less reason to write it.
The result is policy. Banks build credit policy to keep lending inside the lines, and they assess every application against it. If a deal fits, a bank is usually the lowest-cost source of funds. If it doesn't, the answer is often no, however good the deal is. A bank's no is usually a statement about its policy, not about the deal. We cover what happens next in Can I Get a Loan If the Bank Said No?
Every set of rules leaves gaps. A property type the bank avoids. A settlement date it can't meet. Tax returns a year behind. A development without enough presales. An ATO debt. None of these makes a deal bad. They make it hard to fit a policy built for the typical case.
Private and non-bank lenders fill those gaps. They don't take deposits, so they aren't bound by the same prudential capital rules, and they can price and structure each loan around the risk in front of them. The gap isn't a flaw in the banking system. It's a product of it. When bank policy tightens, more deals find their way to the private market.
"Private lender" covers a wide range of capital. Broadly, it includes:
Each has its own appetite. One fund focuses on first mortgages in capital cities, another on construction, another on second mortgages over a few months. Appetite also moves as funds raise and deploy capital. Knowing who is funding what right now matters almost as much as the deal itself.
A private lender starts from a different set of questions.
The security. What the property or asset is, what it's worth on an independent valuation, and how readily it would sell if it had to.
The exit. How and when the loan will be repaid: a sale, a refinance to a bank, the proceeds of another transaction. For a short-term loan, this carries as much weight as anything else.
The story. Why the money is needed, why now, and, if something went wrong along the way, what happened and what has changed.
The borrower. Experience, track record and the ability to meet interest during the loan, which some lenders weigh more heavily than others.
Income and serviceability still matter, but they don't carry the whole decision the way they often do at a bank. That is why private lending suits businesses whose financials don't yet show the full picture, which is where low doc loans come in.
Private money is priced above bank money. The lender is taking risks a bank won't, working to timeframes a bank can't, and using capital that expects a higher return than a deposit. Establishment fees, shorter terms and prepaid or capitalised interest are common. Private loan rates and costs are covered in a separate guide.
That is also why most private lending is short to medium term. Borrowers often use it as a bridge: to settle a purchase, finish a project or get the financials up to date, then refinance to lower-cost funds. Bridging finance is the clearest example. The best private loans are designed to end. Whether private funding makes sense in a particular situation depends on the deal, the lender and the cost of the alternative, and an accountant or financial adviser is the right person to weigh that up.
We work with more than 70 private and non-bank lenders and stay across what they're funding right now. If your scenario fits, we can connect you with the lenders it suits, in the right order. You can also see what our lenders are funding right now.
We don't lend, and we don't make the credit decision. The lender assesses the deal and decides. Where a bank is the better fit, it goes through our trusted broker network.
We work on commercial and business-purpose loans only. 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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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.
Read article →How much can I borrow against property? LVR explained: why lenders cap it, why the valuation drives it, and how it works for second mortgages and development.
Read article →Private loan rates and costs explained: interest, establishment and line fees, prepaid interest, and why the lowest rate isn't always the lowest-cost loan.
Read article →
