private is commercial capital secured against property, assessed on the asset quality and exit strategy rather than a credit score. It offers speed and flexibility for developers and investors who cannot meet bank policy criteria. Rates are higher than banks, reflecting the specific risk and leverage of the deal. This funding is for business purposes only and not for owner-occupied homes.
For local buyers, private lending focused on the underlying security and the borrower's exit plan.
Private Lending Explained
Traditional banks rely on a standardised scorecard and a fixed credit policy to approve loans. Private lenders operate differently by assessing the specific merits of each transaction. This approach allows them to fund deals that are sound but fall outside the rigid bank boxes. The primary focus is on the asset value, the security position, the borrower's track record and a credible exit strategy. Because the credit decision sits closer to the deal, the process can move much faster than a mainstream bank application. Understanding the nuances of private requires recognising that the property itself often carries more weight than the borrower's credit history.
Security structures explained
Security is the foundation of non-bank funding. Lenders typically take a registered first or second mortgage over the property to protect their capital. In some short-term scenarios, a caveat may be used instead of a full mortgage. The ranking of this security is a major factor in pricing. A first mortgage, where the lender has the primary claim on the asset, generally attracts lower rates than a second mortgage, which sits behind another lender. The loan-to-value ratio (LVR) also plays a critical role. Lower LVRs represent less risk and can lead to better terms. Borrowers should be prepared to demonstrate strong equity in the project to secure the most favourable structures.
The importance of exit strategy
A clear exit strategy is essential for any private loan application. Unlike traditional mortgages that may run for decades, these loans are often short-term solutions designed to bridge a gap. Lenders need to know exactly how they will be repaid, usually through the sale of the asset or a refinance to a longer-term lender. For property developers, this might be the sale of completed dwellings. For investors, it could be stabilising a property and then refinancing with a bank. The strength and timing of this exit directly influence the risk profile and the cost of capital. A well-defined exit reduces the lender's risk and can result in a more competitive pricing structure.
When to use non-bank capital
This type of funding is a specific tool for commercial scenarios. It is appropriate for property developers requiring construction capital, commercial investors facing tight settlement timelines or builders needing progress-draw facilities. It is also suitable for rural and agribusiness operators whose assets do not fit standard bank templates. However, it is not consumer credit. It is strictly for commercial and business purposes and is not available for owner-occupied home loans or personal borrowing. When speed, leverage or a complex deal story is the priority, non-bank capital provides the flexibility that traditional banks cannot offer.
- Assess the deal. Evaluate the asset quality, location and your equity position to ensure it meets lender criteria.
- Define the exit. Establish a clear repayment route, such as an asset sale or refinance, with a realistic timeline.
- Determine leverage. Calculate the required Loan-to-Value Ratio (LVR) and decide if a first or second mortgage is needed.
- Present the story. Prepare documentation that highlights the deal strengths, your track record and the security value.
| Security Type | Description | Typical Use Case |
|---|---|---|
| First Mortgage | Registered mortgage ranking first against the title. | Standard commercial funding for strong assets. |
| Second Mortgage | Registered mortgage ranking behind an existing first mortgage. | Unlocking equity or mezzanine finance structures. |
| Caveat | A statutory injunction on the title preventing dealing. | Very short-term bridging or urgent settlement needs. |
Common questions
Is private available for residential homes? No. This funding is for commercial and business purposes only. It is not available for owner-occupied residential homes or personal borrowing.
Why are rates higher than bank rates? Rates are higher to reflect the specific risk, leverage and short-term nature of the deal. The pricing covers the increased risk of lending outside standard bank policy.
This content explains the security structures, risk assessment and use cases for private in Australia.