Private lending is commercial capital assessed deal by deal against the asset and exit rather than a scorecard. It sits above bank rates in price but provides speed and leverage where bank credit policy falls short. This funding is strictly for business purposes and suits asset-backed borrowers who need a flexible structure. Pricing reflects the specific risk, security and timing of the transaction.
For local buyers, private lending comparison which suits the deal structure.
Private Lending Comparison Explained
A fundamental difference in a private lending is the shift from standardised policy to deal-by-deal assessment. Banks apply a fixed scorecard that relies heavily on the borrower's income and tax history. Private lenders focus on the asset quality, the security position and a credible exit strategy. This means developers and investors with complex scenarios or non-standard income sources can still secure funding if the underlying property and exit are strong.
Credit decisions in this space are made faster because the lender looks at the specific transaction merits rather than a broad credit matrix. This approach is essential for projects that do not tick every box in a bank's credit policy but are fundamentally sound and asset-backed.
Cost of Capital vs Return on Equity
Pricing in the non-bank sector reflects the risk, security and speed of the deal. While the headline rate is higher than mainstream bank debt, the cheapest rate is rarely the best outcome. The capital cost must be weighed against the return on equity and the opportunity cost of delayed or lost transactions. As the funding philosophy suggests, price is what you pay but value is what you get.
For developers, using higher-cost capital to preserve equity or complete a project quickly can significantly lift the overall return. A private lending facility might enable a higher loan-to-value ratio, reducing the cash the borrower must contribute. When the deal completes faster or the equity retention is higher, the effective cost of the capital is often justified by the total profit generated.
Security and Loan Structures
Private loans are typically secured by a registered first or second mortgage over property, though short-term deals may use a caveat. The structure is chosen to fit the specific phase of the project or the nature of the timing gap. Common structures include construction loans, which are drawn in progress payments against the build program, and bridging finance, which closes the gap between settlement and an exit event.
Other specialised structures include mezzanine finance, which sits behind senior debt, and caveat loans for urgent settlement issues. Second mortgages are used to unlock additional equity from an existing property. There is no standard rate because each structure carries different risks and ranking priorities. A clean, low-geared first mortgage will price lower than a second-ranking position with a less certain exit.
Suitability and Borrower Profile
Non-bank funding is designed for commercial and business purposes only. It is not consumer credit and does not apply to owner-occupied residential home loans. The ideal borrower profile includes property developers, commercial property investors and builders who require a facility that aligns with a project timeline rather than a rigid bank process.
Rural and agribusiness operators also benefit from this flexibility, as farm deals often fall outside standard bank templates. This type of capital is appropriate when the value of moving quickly, accessing higher leverage or structuring a complex capital stack outweighs the benefit of a lower bank rate. Borrowers must have hard assets as security and a clear strategy to repay the loan.
- Assess the Asset and Security. Determine the value and quality of the property being offered as security. Lenders focus on the asset's realisable value in a worst-case scenario.
- Define the Exit Strategy. Establish exactly how the loan will be repaid. This could be through a property sale, refinance or another capital injection.
- Calculate Return on Equity. Compare the cost of the private loan against the return generated by preserving your equity or completing the project faster.
- Structure the Capital Stack. Decide if the loan sits as senior debt or if it requires a more complex structure like mezzanine finance or a second mortgage.
| Criteria | Bank Debt | Private Lending |
|---|---|---|
| Assessment | Standardised scorecard and credit policy | Deal-by-deal assessment against asset and exit |
| Settlement Speed | Slow, often weeks due to process | Fast, often days to suit deal timeline |
| Leverage | Lower LVR, strict on equity | Higher LVR available to preserve equity |
| Pricing | Lowest headline rates | Premium pricing reflecting risk and speed |
Common questions
Is a private lending valid for home loans? No. The products described here are commercial and business-purpose loans only. They are not suitable for personal borrowing or owner-occupied residential properties.
Why is the pricing higher than bank rates? Pricing is higher to reflect the increased risk, the speed of settlement and the higher leverage typically provided. The cost covers the flexibility that banks cannot offer.
What security do I need? You generally need a registered first or second mortgage over Australian property. Some short-term facilities may use a caveat, but hard asset security is essential.
This guide outlines the comparison factors for non-bank commercial lending in Australia.