Private lending in Australia: an overview

Quick answer

Private lending is property-secured finance from lenders other than the major banks, such as private funds, family offices and non-bank lenders. It is usually faster and more flexible on documentation, costs more, and runs for shorter terms, so a clear exit strategy matters more than income servicing.

How the main private loan types compare

General comparison only. Terms vary by lender, property and borrower.

What private lending is

Private lending is credit provided by a funder that is not a bank or other authorised deposit-taking institution. In Australian property finance, private lenders are usually private credit funds, mortgage funds, family offices, and individual or wholesale investors. Some lend directly; many work through lending managers and finance brokers. Almost all private property loans are secured by real property, which is why people also call them private property loans, private mortgages or asset-based loans.

This page is the starting point for Privet's private lending guides. It explains who private lenders are, which loan types exist, how loans are assessed, what they cost, the main risks and how to compare offers. Each loan type has its own detailed guide, linked below.

Privet is not a lender, broker or adviser. This page is general information only. It does not consider your circumstances and it is not a recommendation to borrow.

Who private lenders are

The private lending market is broad. Understanding who sits behind a loan helps you ask the right questions.

• Private credit funds. Pooled investment funds that lend to borrowers, often managed by a specialist manager. Some are open to wholesale investors only, others to retail investors under a disclosure document. For more detail, see private, bank and non-bank lenders.
• Mortgage funds. Funds that specialise in loans secured by registered mortgages. Their lending policy usually sets maximum LVRs, acceptable property types and loan terms.
• Family offices and high-net-worth investors. Private capital that lends case by case, sometimes very quickly, sometimes with less standard documentation.
• Non-bank lenders. Larger lenders funded by warehouse facilities or securitisation rather than deposits. They sit between banks and smaller private funders on price and flexibility.

Whoever the funder is, check the business and any broker on ASIC's professional registers and ABN Lookup before you share documents or pay anything. Our sources page lists the official registers.

Types of private property loans

"Private lending" is an umbrella. The loan type you need depends on the security, the purpose and how you will repay.

• Private first mortgage loans are secured by a first registered mortgage. They are the most common private loan and usually the cheapest form of private credit, because the lender ranks first.
• Second mortgage loans sit behind an existing first mortgage and release equity without refinancing the senior loan. They generally cost more because the lender ranks second.
• Caveat loans are very short-term loans where the lender protects its interest by lodging a caveat on the title rather than registering a mortgage.
• Bridging finance covers the gap between buying one property and selling another.
• Short-term property finance describes any property-secured loan designed to be repaid within months.
• Commercial property loans fund the purchase or refinance of offices, shops, warehouses and other income-producing property.
• Construction finance funds building works in stages against progress.
• Low-doc and non-conforming loans suit borrowers whose income or credit history does not fit bank policy.

If you are not sure which applies to you, the compare page sets the main options side by side.

How private lenders assess a loan

Banks lean heavily on serviceability: whether your income can meet repayments over many years. Private lenders still consider income and credit, but usually put more weight on three things.

1. The security property. Its value, location, condition, zoning and how quickly it could be sold. The lender's own valuation decides the figure, not your estimate.
2. The loan-to-value ratio. How much is borrowed relative to the value of the security. Lower LVRs give the lender a buffer. Check your numbers with the LVR and loan-to-cost calculator.
3. The exit strategy. How the loan will be repaid: a sale, a refinance to a bank or non-bank lender, or a known business payment. A weak exit is one of the most common reasons private applications are declined. See exit strategies and backup exits.

Lenders will also ask about the purpose of the funds, the borrowing entity, existing debts and any guarantors. Our guide to documents lenders ask for lists what to prepare.

What private loans cost

Private loans usually cost more than a standard bank loan. The price reflects higher risk, faster turnaround, shorter terms and the lender's need to recover fixed costs over fewer months. Rather than quoting rates, which vary widely by lender and deal, Privet focuses on the parts of the cost you should ask about.

• Interest rate, and whether it is paid monthly, prepaid at settlement or capitalised (added to the balance).
• Establishment or application fees, often charged as a percentage of the loan.
• Valuation and legal fees, usually paid by the borrower for both sides.
• Line, broker or management fees, which may be charged monthly or upfront.
• Default interest, a higher rate that applies if you breach the loan, including paying late.
• Extension and exit fees, which matter if your sale or refinance is delayed.

Prepaid interest reduces the cash you actually receive. Estimate your net advance and total cost with the cost estimator, and read interest structures and fees before you compare offers.

Private lending compared with a bank loan

Neither is better in general. The right choice depends on your purpose, timeframe and ability to qualify. Many borrowers use a private loan for a short period and then refinance to a bank.

Regulation and borrower protections

Whether consumer credit law applies depends on the purpose of the loan. Loans mainly for personal, domestic or household purposes are generally regulated by the National Consumer Credit Protection Act, which requires lenders to hold a credit licence and meet responsible lending obligations. Loans mainly for business or investment purposes are generally not regulated in the same way, and lenders often ask borrowers to sign a business purpose declaration.

That difference matters. With an unregulated loan you may have fewer rights if something goes wrong. Before you sign, ask a lawyer to explain the loan agreement, the mortgage or caveat, any personal liability you take on and the default clauses. Our guides on default and enforcement and financial hardship and complaints explain what can happen and where to get help.

Main risks to understand

• Exit risk. If the sale or refinance takes longer than planned, default interest and extension fees can quickly reduce your equity.
• Valuation risk. The lender's valuation may be lower than you expect, reducing the amount available.
• Cost risk. Fees and prepaid interest can make the true cost much higher than the headline rate.
• Personal liability risk. Directors and related parties are often asked to sign personal undertakings, putting personal assets at stake.
• Counterparty risk. Dealing with an unlicensed or unknown operator. Always check the registers first.

How to compare private lending offers

1. Confirm the loan type and ranking (first, second or caveat).
2. Ask for every fee in writing, including default, extension and exit fees.
3. Work out the net advance after fees and prepaid interest.
4. Compare total cost over the realistic term, not the ideal one.
5. Check what happens if you need more time, and get extension terms in writing.
6. Verify the lender and any broker on ASIC's registers.
7. Have your own lawyer review the documents before signing.

Our guide to reading a term sheet walks through a typical offer line by line, and choosing a professional explains when to involve a broker, lawyer or accountant.

A worked example

The following example is illustrative only. It uses round numbers to show how the parts of a private loan fit together, not what any lender would offer.

A business owner needs funds for six months while a commercial property sale settles. The property used as security is valued by the lender at a round figure, and the owner asks for a loan well inside the lender's maximum LVR. The lender's indicative terms include an establishment fee, valuation and legal costs, and six months of interest prepaid at settlement.

At settlement the lender deducts the establishment fee, its legal costs and the prepaid interest from the loan amount. The cash the owner actually receives, the net advance, is noticeably smaller than the loan amount on the offer. If the owner had planned around the gross loan figure, they would be short.

Now suppose the sale is delayed by two months. The loan term ends before the sale settles. The lender may agree to extend, usually for an extension fee and further interest, or default interest may begin to apply. Over a few months, those extra costs can be significant compared with the original fees.

The lessons are simple. Plan around the net advance, not the loan amount. Model the cost of a realistic delay, not just the ideal timeline. Agree extension terms in writing before you sign. You can test both scenarios with the exit timeline tool.

Who uses private lending

Private lending is used by a wide range of borrowers. Common examples include:

• Property investors who need to settle a purchase before a bank approval is finalised.
• Developers funding land, pre-development costs or construction where banks have tightened policy.
• Business owners using property equity to fund working capital, tax debts or an acquisition. See business funding secured by property.
• Self-employed borrowers with irregular or recent income that does not fit bank serviceability models.
• Borrowers between properties who have bought before selling and need bridging finance.
• Borrowers with a credit impairment who need time to repair their position before refinancing to a mainstream lender.

In each case, the private loan is usually a means to an end. It solves a timing or policy problem and is then repaid from a sale or a cheaper refinance.

Common misconceptions

"Private lenders do not check anything." Reputable private lenders still value the property, search the title, verify identity under anti-money laundering rules and review the exit. Some move faster because their processes are simpler, not because they skip checks. See AML and KYC.

"The interest rate is the cost." The rate is only one part. Fees, prepaid interest, default interest and extension terms often decide whether a loan is affordable.

"I can always refinance later." A refinance depends on the new lender's own tests. Plan a backup exit in case it is delayed or declined.

"Business loans have the same protections as home loans." Loans mainly for business or investment purposes generally fall outside consumer credit protections. Read the documents carefully and get legal advice.

Questions to ask any private lender or broker

• Which entity is the lender, and does it or the broker hold the licences its activity requires?
• What is the loan amount, and what is the net advance after all deductions?
• How is interest paid: monthly, prepaid or capitalised?
• What are the establishment, valuation, legal, line and exit fees?
• When does default interest apply, and at what rate?
• What happens if I need more time, and what does an extension cost?
• Are personal undertakings required from directors or related parties?
• How and when will the lender register its security, and how will it be discharged?

Write the answers down and compare offers on the same basis. If a lender will not answer clearly, treat that as a warning sign.

Private lending in Melbourne and other states

Private lending works broadly the same way across Australia, but stamp duty, land tax and title processes differ by state. If you are borrowing in Victoria, read the Victorian stamp duty guide. Each state has its own guide, for example New South Wales and Queensland.

Next step

If you want to talk through your situation with a finance provider, you can send an enquiry. Privet does not lend or give advice; we pass your details on only with your consent. You can also create a free workspace to save calculator results and plans.

For a worked example, see the self-employed borrower scenario.