Australia's private credit market explained

What "private credit" means in property

When people talk about private credit in Australian property, they usually mean loans made by lenders that are not banks. Banks are authorised deposit-taking institutions, which means they fund loans largely from customer deposits and are supervised by the Australian Prudential Regulation Authority. Private lenders work differently. They raise money from investors, from wholesale funds, from superannuation and institutional mandates, from warehouse facilities provided by banks, or from the owners' own capital, and then lend that money against property.

That difference in funding shapes almost everything else: how quickly a lender can decide, what kinds of risk it will accept, how it prices a loan and what it asks for in return. It is also why private lenders often appear in situations a bank finds awkward, such as construction with limited pre-sales, land held before approval, bridging between two transactions or a short-term loan secured behind an existing mortgage. Our overview of private lending explains these loan types in more detail, and the lesson on private, bank and non-bank lenders compares the three groups side by side.

The kinds of lender you will meet

The market is not one thing. It is easier to understand as a set of overlapping groups.

Large institutional debt managers

At the top end are managers that run large pools of investor money and lend on major projects. Names that often come up include MaxCap Group, Metrics Credit Partners and Centuria Bass Credit. Managers like these typically fund larger residential and commercial developments, investment property and corporate facilities, and may raise money from wholesale investors, listed vehicles or institutional partners. Their loans tend to be larger and more heavily documented, with detailed reporting during construction.

Retail-facing fund managers

Some managers raise money from a wide base of individual investors as well as institutions. La Trobe Financial is a long-established example and offers both residential and commercial property loans. Because these managers deal with retail investors, they publish product disclosure material and are subject to licensing requirements for the funds they operate.

Specialist and mid-market lenders

A broad middle group lends on smaller developments, land, residual stock, bridging and short-term commercial loans. Payton Capital and Allied Credit are examples that borrowers and brokers frequently mention. Lenders in this group often move quickly and may consider loans that sit outside larger managers' criteria, but each has its own appetite and documentation style.

Small balance-sheet and private-investor lenders

Finally there are many smaller lenders that fund loans from their own capital or from a small group of private investors. They can be flexible, but the quality of their documentation and processes varies widely. This is where careful checking matters most, and our guide on how to check a lender walks through the steps.

How each group raises its money

The source of a lender's money affects your loan in practical ways.

• Pooled funds combine money from many investors. Loans are often matched to the fund's mandate, so a fund set up for construction lending may not do land loans.
• Contributory or syndicated funds let investors choose individual loans. The lender needs to find investors for each deal, which can affect timing.
• Warehouse lines are facilities provided by banks or other financiers that a non-bank draws on to write loans, later refinancing them through a securitisation or sale.
• Balance-sheet lending uses the lender's own money. Decisions can be fast, but capacity is limited.

When you meet a lender, it is reasonable to ask which of these it relies on, whether funds are committed for your loan and what happens if the lender's own funding becomes harder to get partway through a construction facility.

What official sources say about the sector

You do not have to rely on lenders' marketing to understand the market. Several government bodies publish material on it.

• The Reserve Bank of Australia reviews risks in non-bank lending in its regular Financial Stability Review, available at rba.gov.au. These reviews discuss the growth of private credit, links between banks and non-banks, and how commercial property conditions affect lenders.
• The Australian Securities and Investments Commission regulates credit licensing, financial services licensing and the conduct of fund managers. It has published reviews of private credit funds and their disclosure, and you can find these on asic.gov.au.
• The Australian Prudential Regulation Authority collects data from registered financial corporations, including many non-bank lenders, and publishes statistics on apra.gov.au.
• Moneysmart, run by ASIC, explains private credit and lending risks in plain language at moneysmart.gov.au.

Our explainer on private credit summarises how these regulators see the sector and why investor protections matter to borrowers too.

How this affects borrowers

For a borrower, the key points are practical.

Speed and flexibility come with cost. Private lenders often decide faster and accept situations banks will not, but interest rates, establishment fees and line fees are usually higher. Our guide to term sheet fees and default clauses explains the common charges.

The exit matters as much as the entry. Most private property loans are short term. The lender wants to know how you will repay, whether by sale, refinance to a bank or another lender. Read our article on exit strategies before you sign.

Security and ranking are central. Some private loans are registered first mortgages; others are second mortgages or rely on a caveat. The legal difference is explained in caveat versus second mortgage registration.

Regulation depends on purpose. A loan wholly or mainly for business or investment purposes is generally outside the National Credit Code, which means fewer statutory protections. Our guide to ASIC's registers shows how to check what a lender is licensed for.

Questions worth asking any lender

Whatever the lender's size, these questions help you compare offers on a like-for-like basis:

• What is your legal entity name, ABN and any licence number?
• Where does the money for this loan come from, and is it committed?
• What security will you take and in what ranking?
• What fees apply at establishment, during the loan, on early repayment and on default?
• What reporting or valuations will you require during the loan?
• Which complaints scheme, if any, do you belong to?

Write down the answers and compare them with the documents you receive. Differences between what you are told and what is written are a reason to pause.

Why the market has grown

Several forces have pushed borrowers toward private lenders. Banks hold capital against riskier property loans under prudential rules, so many have narrowed their appetite for land, early-stage development and loans with limited pre-sales. Our article on APRA rules and bank lending limits explains how those rules work. At the same time, investors looking for income have put more money into property debt funds. The result is a larger, more varied private market, with more choice for borrowers but also more variation in quality, documentation and conduct. That variation is the main reason to read each offer closely and verify every party involved.

Where Privet fits

Privet is an information service. We explain how private property lending works, link to official sources and provide calculators that use the inputs you enter. We do not lend, we do not rank lenders and we do not take referral payments for naming any business in this article. If you want to talk through your situation, you can send an enquiry and we will respond with general information.

Further reading

• Private lending overview
• How private lending works
• Construction finance
• Scams and red flags