How to Become a Private Lender in Australia: Rules and Risks
Private lending · Regulatory guide · Australia
The first decision is not which interest rate to charge. It is what you mean by becoming a private lender. Lending your own capital directly, investing through a fund or contributory mortgage, and raising other people's money to build a lending vehicle are different structures. This guide follows the direct-lender path from that first fork through licensing, AUSTRAC, entity choice, security, the first loan, servicing and default.
Quick Answer
To become a private lender in Australia, first decide whose money you will lend, who the borrower will be and what the money will genuinely be used for. Those facts determine whether the National Credit Code and Australian credit licensing apply. Separate AML/CTF, contract, security and registration rules can still apply even where a direct commercial loan sits outside the Code.
This guide follows the own-money route. If a manager or platform pools capital, chooses the loans or holds the mortgage for investors, you may be considering an investment or managed structure rather than becoming the direct lender. The fork matters before you transfer any money.
Also searched as: lending money privately · become a private lender · being a private lender · private money lending.
What are the three ways to become a private lender in Australia?
You become a direct private lender by deciding what loans you will make, checking which regulatory regime applies, setting up the lender and its controls, and then underwriting, documenting, funding and monitoring each loan. The mistake is to start with a borrower or an advertised return before deciding which legal route you are actually taking.
First decide which version of "private lender" you mean
| Route | What you actually do | The first legal question | Where this guide takes you |
|---|---|---|---|
| Lend your own money directly | Your chosen lender entity advances its own capital to the borrower and takes the loan and security in its own name | Does the loan create regulated credit activity, and what AML/CTF, contract and security rules apply? | This is the main path covered below |
| Invest through a fund, platform or contributory mortgage | Another party originates, administers or controls some or all of the lending while you provide investment capital | What financial product or managed structure are you acquiring, who holds the mortgage, and what control and liquidity do you really have? | Use the distinction here to identify the route; do not assume you are the direct lender |
| Raise or pool other people's money to lend | You operate a vehicle that deploys capital contributed by other people | Does the arrangement become a managed investment scheme or involve financial services that need separate licensing and disclosure? | The managed-investment-scheme section sets the boundary; specialist legal design is a separate project |
What usually happens after this search?
| What brought you here | The next question that matters | Where the decision leads |
|---|---|---|
| A broker, solicitor or borrower has shown you one deal | Can I legally fund this borrower and purpose, and what security would I actually hold? | Credit Code test, lender structure, valuation, mortgage or other security, then the first-loan workflow |
| You have cash you want to deploy for income | Do I want to underwrite and control individual loans myself, or do I actually want a fund or managed structure? | Direct-lender route versus fund, platform or contributory-mortgage route |
| You want to turn one loan into a repeat lending business | What rules, documents, origination and servicing system has to exist before the next borrower arrives? | Credit licensing, AUSTRAC, underwriting policy, deal flow, monitoring and default controls |
| Friends, family or investors want to put money in with you | Am I still lending my own money, or am I now operating a pooled or managed investment arrangement? | Managed investment scheme and financial-services analysis before accepting capital |
The direct-lender path, in order
- Choose the lane. Decide whether you will lend your own capital only, and define the borrower types, loan purposes and security you are prepared to consider.
- Run the Credit Code test. Work out whether the loans you intend to write are regulated credit and whether you need an Australian credit licence or authorisation.
- Choose the lender structure. Decide with your legal and tax advisers whether the lender will be you personally, a company, a trustee or another properly advised vehicle, and make sure the loan and security will be taken in the correct name.
- Build the compliance and document stack. Deal with AUSTRAC, customer due diligence, loan documents, valuation reliance, security registration and any first-mortgagee consent or priority arrangements before funding.
- Set your underwriting rules. Decide what evidence you require for borrower identity, genuine purpose, security value, existing debt, serviceability or exit, and the events that make you decline a deal.
- Choose how deals reach you. Brokers, solicitors, accountants, originators and direct enquiries produce different files, but none replaces your own verification.
- Plan the back end before settlement. Decide who collects payments, monitors covenants and maturity, issues notices, instructs lawyers and makes the enforcement decision if the borrower defaults.
The rest of this guide follows those decisions in that order. The point is not to make lending look administratively difficult. It is to make clear that the first loan is the last place to discover which parts of the system you never built.
How much money do you need to become a private lender?
There is no single dollar amount that makes someone a private lender. For a direct lender, the practical capital requirement is the amount you actually advance plus enough liquidity to pay the transaction, monitoring and recovery costs that can arise before the borrower repays you.
The number therefore follows the kind of loan you are willing to write, not the other way around. A person with enough cash to fund one loan may still have a poor lending model if almost all of their available capital becomes concentrated in one borrower, one property or one exit event. A licensed consumer-credit business also has its own resource obligations; pooling other people's capital is a different structure again.
| Capital bucket | What it is for | Why it matters before settlement |
|---|---|---|
| Loan principal | The amount actually advanced to the borrower | It is the capital placed at risk and usually unavailable until repayment, refinance, sale or enforcement |
| Transaction costs | Legal work, valuation, searches, registration and administration | Someone has to fund the work needed to create and perfect the loan and security even if the deal later does not proceed |
| Contingency liquidity | Unexpected legal, property, insolvency or enforcement costs | A secured lender can still need cash before any recovery occurs |
| Portfolio capacity | Avoiding a position where one borrower or property consumes all deployable capital | Security reduces some loss risk; it does not create diversification or instant liquidity |
| The question | The short answer |
|---|---|
| Do you need a credit licence? | Only if you engage in credit activity, which turns on whether the contract is regulated by the National Credit Code. Lending only to companies, or to individuals for a genuine business purpose that is not residential investment, is generally outside it. |
| Does a business purpose declaration settle it? | No. A declaration is ineffective where the lender knew, or would have known after reasonable inquiries, that the money was going to a Code purpose. |
| Is putting a company in as borrower a fix? | No automatic safe harbour follows from a company name on the contract. A genuine company borrower is ordinarily outside the Code's natural-person debtor limb, but artificial company interposition can create serious unconscionability and substance-over-form risk. |
| Do you need an AFS licence as well? | Ordinary lending of your own money under a credit facility does not, by itself, make that credit facility a financial product. An AFS licence can become relevant if your wider structure also involves providing financial services or issuing or managing financial products. |
| Is there a cap on what you can charge? | There is no single cap that applies to every private loan. Section 32A imposes a 48% annual-cost-rate prohibition on the regulated credit contracts it covers, subject to the section's express exclusions. |
| Do you have to enrol with AUSTRAC? | If you provide a designated service with the required geographical link to Australia, you must enrol. AUSTRAC now uses the service names "Making loans" and "Guaranteeing loans"; enrolment and registration are not the same step. |
| Do unfair contract terms rules apply? | Yes, to standard form small business contracts within the thresholds, whether or not the Credit Code applies, and each unfair term is a separate contravention. |
| Do you need a banking licence? | Ordinary direct lending of your own funds without taking deposits does not, by that fact alone, make you an authorised deposit-taking institution. Accepting repayable money from other people changes the analysis. |
Do you need a credit licence to lend money in Australia?
You need an Australian credit licence if you engage in credit activity. That is the whole test, and it is not the test most people run. The common framing is a search for an exemption, as though lending is licensed by default and certain lenders are let off. The statute works the other way around. The prohibition attaches to an activity, and the activity is defined by reference to the contract: a person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity, under section 29 of the National Consumer Credit Protection Act 2009.
The regulator states the same thing in plainer words: if you engage in credit activities you will generally need an Australian credit licence or authorisation from a credit licensee before starting business. The detailed guidance on what counts sits in Regulatory Guide 203, Do I need a credit licence?, which is the document to read before deciding you are outside the regime.
So the question is never "am I exempt". It is "is what I am about to do a credit activity", and that collapses into a prior question: is this contract a credit contract regulated by the National Credit Code? Providing credit under a credit contract is a credit activity. Being a mortgagee or a beneficiary of a guarantee relating to a credit contract is a credit activity. Acting as an intermediary is a credit activity. Every one of those hangs off the words "credit contract", and "credit contract" is defined by the Code. The next section runs that test in order.
The two-licence claim, and why it is being repeated wrongly
Several pages currently ranking for this question state that a private lender must hold two separate licences, a credit licence and an Australian financial services licence. That claim is a misreading of a conditional sentence. The regulator's own page on holding both says you must hold two separate licences to engage in credit activities and provide financial services. The condition is doing both. Strip the condition out and the sentence becomes a rule that does not exist.
The provision that makes the condition do the work is section 765A(1) of the Corporations Act 2001, which excludes prescribed credit facilities from the financial-product definition. Ordinary lending of your own money under a credit facility does not, by itself, turn that credit facility into a financial product. That does not mean every business built around lending is automatically outside Chapter 7. An AFS licence can become relevant if the wider arrangement also involves issuing, dealing in or managing financial products, including interests in a managed investment scheme. That boundary is covered in the section on other people's money.
The second thing that matters before deciding which side of the line to sit on is what the licence brings with it. A credit licensee carries general conduct obligations under section 47 of the Act: an internal dispute resolution procedure that meets the regulator's standards, membership of the external dispute resolution scheme, compensation arrangements, adequate resources and training, and a written compliance plan. Deciding to operate outside the Code is not only a decision about paperwork at the front end. It is a decision about which complaints machinery your borrower can reach at the back end, which is covered in the section on default.
The regulator's detailed guidance on what counts sits in Regulatory Guide 203, Do I need a credit licence?, which is the document to read before concluding that you sit outside the regime. None of this is a light-touch obligation either. The prohibition in section 29 is a civil penalty provision, and the same conduct can also be an offence. If you are moving from being a borrower in this market to being a lender in it, the companion page on what private lending is covers the vocabulary; this page covers what you take on.
Source: Australian Securities and Investments Commission, Do you need a credit licence?, and Regulatory Guide 203, both read 15 August 2026; National Consumer Credit Protection Act 2009 (Cth) ss 6, 29, 47 and Corporations Act 2001 (Cth) s 765A, read 15 August 2026.
When does the National Credit Code catch a private loan?
The Code catches a loan when four things are all true at once: the debtor is an individual, the money is for a personal, domestic, household or residential investment purpose, a charge is made for the credit, and the credit is provided in the course of a business. Run them in that order rather than reasoning backwards from the outcome you want.
Under section 5 of the Code, it applies to the provision of credit if, when the contract is entered into: the debtor is a natural person or a strata corporation; the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes, or to purchase, renovate or improve residential property for investment purposes, or to refinance credit provided wholly or predominantly for those residential investment purposes; a charge is or may be made for providing the credit; and the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction, or as part of or incidentally to another business.
Two of those limbs do most of the work and one of them catches people out. The debtor limb is why lending to a company is generally outside the Code: a company is not a natural person. The purpose limb is why "business purpose" is not the clean boundary the internet says it is, because the second and third purpose limbs are residential investment.
Lending to an individual to buy or renovate a residential investment property is a Code purpose. It does not stop being a Code purpose because the borrower calls the property an investment, describes the activity as a business, or holds several of them. That is a regulated consumer credit contract, and providing it without a licence is unlicensed credit activity.
| The loan in front of you | Code applies? | Credit licence needed? | What the lender has to do |
|---|---|---|---|
| Borrower is a genuine company | Ordinarily no under the debtor limb | Not for that contract merely because you provide the credit | Confirm the company is genuinely the debtor and remember that other laws still apply. A company borrower does not create immunity from unconscionability, unfair terms, AML/CTF or security law. |
| Borrower is an individual, money is for personal or household use | Yes | Yes | Hold a licence or an authorisation, or do not write the loan. |
| Borrower is an individual, money is for a genuine business purpose other than residential investment | No | No | Evidence the purpose. The evidence, not the declaration, is what protects you. |
| Borrower is an individual, money buys or renovates a residential investment property | Yes | Yes | This is the limb most often missed. Residential investment is a Code purpose in its own right. |
| Borrower is an individual, money refinances an earlier residential investment loan | Yes | Yes | The refinancing limb follows the purpose of the credit being refinanced. |
| A business purpose declaration has been signed | Presumed not, but rebuttable | Depends | The declaration creates a presumption. It is ineffective if you knew, or reasonable inquiries would have told you, the money was going to a Code purpose. |
| A shell company is inserted for a loan economically sought by an individual | Do not treat the company as a universal safe harbour | Get advice on the actual contract and wider activity | Stubbings shows the structure can matter to unconscionability; the separate Oak Capital allegations about Code-avoidance structures remain unresolved. Do not convert either into a simplistic "company equals safe" or "company equals Code" rule. |
The fourth limb, "in the course of a business of providing credit", is the one that separates a one-off private arrangement from a lending business. A single loan to a friend, unremunerated and not part of any business, is not what this page is about. The borrower-side note on where the purpose test actually bites shows how the same limb reads from the other seat.
Charging for credit, repeating the activity and holding yourself out as willing to lend are strong indicators that the business limb needs serious attention, but whether a business of providing credit is being carried on is ultimately fact-specific. Once that limb is satisfied, the debtor and purpose questions become decisive.
Source: National Credit Code, Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), s 5, Federal Register of Legislation, read 15 August 2026.
What happened when lenders tried to escape the Credit Code?
Three different attempts to place consumer lending outside the Code have now come before Australian courts or the regulator. Two have been decided against the lender, one of them in the High Court. The third is before the courts and undecided. This is the section of the topic that almost nothing on the public web covers, and it is the section that decides whether a private lending business survives contact with a complaint.
The signed declaration
Section 13 of the Code lets a debtor declare, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose. The declaration is not a free-form letter: it is a document in the form prescribed by the National Consumer Credit Protection Regulations, and its content is set by that form rather than by the lender. It creates a presumption in the lender's favour, but only until the contrary is established.
Subsection 13(3) then removes it: the declaration is ineffective if, when the declaration was made, the credit provider knew, or had reason to believe, or would have known, or had reason to believe, if the credit provider had made reasonable inquiries about the purpose for which the credit was provided, that the credit was in fact to be applied wholly or predominantly for a Code purpose. Where the declaration is ineffective, subsection 13(4) treats the purpose limb of section 5 as satisfied. The loan is a regulated consumer credit contract and always was.
In a Federal Court liability judgment delivered on 15 April 2025, a business lender and a loan introducer were found to have engaged in unlicensed credit activity in relation to loans provided to two consumers. The regulator's account of the finding is worth quoting because it is the operative rule, not a commentary on it: business purpose declarations are ineffective including where a credit provider would have known, if they had made reasonable inquiries about the credit purpose, that the credit was in fact to be applied for personal use.
On the same matter, the loans were presumed to be consumer loans pursuant to the Credit Code and the entities did not establish that they were business loans. Penalties followed on 12 December 2025: combined penalties of $515,000, being $405,000 against the lender for unlicensed credit activity and breaches of consumer protection provisions in the Credit Code, and $110,000 against the introducer for unlicensed credit activity.
Read that sequence carefully, because it inverts the intuition. The lender did not have to be shown to have known. The lender had to establish that the loans were business loans, and could not. The declaration did not shift that burden; the absence of inquiries removed the declaration's protection.
The interposed company
The second structure is the one the current crop of AI-generated answers actively recommends: lend only to companies. In proceedings commenced in October 2024 over conduct from March 2019 to October 2023, the regulator alleged that a lender provided loans to companies, rather than the individuals requiring the loan, to avoid the operation of the Code, and that the lending model required a company to be the named borrower for loans in circumstances where the company did not benefit from, or have any genuine interest in, the loan.
It also alleged that in most cases, the individuals seeking the loan provided their own homes as security. Those allegations have not been determined and nothing here should be read as a finding.
The Oak Capital allegations remain undetermined, but the proceeding has moved materially since it was filed: both Oak Capital entities were placed into liquidation on 22 May 2026, and on 4 June 2026 ASIC applied for leave to continue the proceeding against them. The hearing of that application had not been listed when ASIC last updated the matter. The useful point for a new lender is not to treat an allegation as a precedent; it is to notice the exact structure the regulator is testing.
A genuine company borrower is ordinarily outside the Code's natural-person debtor limb. What a company name does not provide is a universal safe harbour from every other legal doctrine or from factual scrutiny of the transaction. The High Court case below is important for that reason, but it should be read for what it actually decided: unconscionable conduct in an asset-based lending system, not a freestanding rule that every company-borrower loan is regulated by the Code.
The certificate of independent advice, and what the High Court said about it
The third structure adds professional certificates to the company borrower, and it went to the High Court in Stubbings v Jams 2 Pty Ltd [2022] HCA 6, decided unanimously on 16 March 2022. The facts were an individual guaranteeing a loan made to a company he owned and controlled, where the company had no assets and never traded, the loan and guarantee were secured by mortgages over his own properties, and he provided signed certificates of independent legal and financial advice drafted by the lender's own law firm.
The lending system in that case had a feature the judgment describes plainly: the lender, once satisfied with the borrower's security, otherwise has no interest in, and makes no enquiries about, the borrower's capacity to service the loan. The intermediate appellate court held the lender was entitled to rely on the certificates and to refrain from further inquiry. The High Court allowed the appeal. On the certificates it held that the absence from them of any reference to the borrower's actual circumstances was eloquent of their artificiality, and that it was open to infer they were mere window dressing.
The Court did not treat the shell company as a neutral feature. On the facts before it, the company had no assets and never traded, and the High Court described its interposition as commercially unnecessary and as a step calculated to impede scrutiny of the fairness of the transaction. The certificates of advice were also treated as evidence of artificiality. The holding was unconscionability on that lending system and those facts. The practical lesson is narrower and more useful than "never lend to a company": a real company borrower and an artificial company wrapper are not the same file.
A pro forma certificate signed by a professional chosen by the lender's side, addressed to the lender, containing nothing specific to the borrower, was not protection. It was evidence of the system.
You are asked to fund an individual who wants money to clear personal debts. The introducer proposes a company as borrower, a signed business purpose declaration, and security over the individual's home.
Running the test in order rather than accepting the structure: who is the debtor, and does that company trade, hold assets, or take any benefit from this money? What is the money actually for, on the evidence in front of you rather than on the form? What inquiries did anyone make about the purpose, and are they written down? And what does the declaration prove, given that it is ineffective precisely where reasonable inquiries would have shown a Code purpose? On these facts the structure does not answer the question, it changes the subject.
A lender who writes this loan is relying on documents the High Court has already looked past, and the point at which that gets tested is the point at which the borrower complains. Lenders who decline the structure and, where the purpose is genuinely commercial, rebuild the file around the real borrower and real evidence of purpose, are the ones whose files survive that moment. Where a company or trust genuinely does hold the asset and the borrowing, that is a different file, and the note on property held in a trust or company as security sets out what a lender should be reading.
Sources: National Credit Code s 13 and the National Consumer Credit Protection Regulations, read 15 August 2026; High Court of Australia, Stubbings v Jams 2 Pty Ltd [2022] HCA 6, rechecked 17 August 2026; Australian Securities and Investments Commission media releases 16 April 2025, 12 December 2025 and 30 October 2024, all read 15 August 2026.
Should you lend personally, through a company or through a trust?
No lender structure is automatically the right answer for every private lender. The choice changes who owns the loan and security, how the activity is administered and taxed, how succession works and where liabilities sit; it does not change the borrower's real purpose or turn regulated credit into commercial credit.
This is a different question from interposing a company as the borrower. Here the issue is the entity on the lender side. Make the choice before the first settlement, because the lender named in the loan agreement should align with the entity taking the mortgage or other security and receiving the income. Moving a loan later can require assignments, transfers, consents and tax or duty analysis.
An ABN is not a private-lending licence. The Australian Business Register says an entity is entitled to an ABN if it is carrying on or starting an enterprise in Australia, making relevant supplies, or is a Corporations Act company. A systematic lending operation may therefore have ABN, accounting and record-keeping consequences that a genuinely isolated private arrangement does not. Treat that as a business and tax setup question, not as permission to write a particular loan.
| Lender structure | What it changes | What it does not solve | Question to settle before the first loan |
|---|---|---|---|
| Individual | The individual owns the debt and security directly and receives the lending income personally | Licensing, AML/CTF, documentation, security priority or concentration risk | Whether personal ownership matches the tax, asset-protection and succession outcome you actually want |
| Company | A separate legal entity becomes the lender, owns the debt and security, and carries company administration | The Credit Code analysis of the borrower and purpose, or the need to document and register security correctly | Whether the company should be a dedicated lending entity and how capital will be introduced and extracted |
| Trust with an individual or corporate trustee | The trustee enters the transaction for the trust, so the trust deed, trustee powers and tax administration matter | Regulatory characterisation of the loan or the need for the trustee to have power to lend and take security | Whether the deed and trustee structure actually permit the proposed lending activity and match the intended beneficiaries and tax treatment |
Sources: Australian Securities and Investments Commission, Sole trader? Partnership? Company? Trust?; business.gov.au, Trust; Australian Business Register, ABN entitlement, all read 17 August 2026. Tax and asset-protection outcomes depend on the structure and circumstances and require advice.
Is there a maximum interest rate a private lender can charge?
There is no single interest-rate cap that applies to every private loan in Australia. Section 32A of the National Credit Code imposes a 48% annual-cost-rate prohibition on the regulated credit contracts it covers, subject to the section's express exclusions. A genuine commercial loan outside the Code is not brought under that ceiling merely because it is called private lending.
The important phrase is annual cost rate, not headline interest rate. The statutory calculation can include prescribed fees and charges as well as interest, so the legal question is not answered by reading the coupon alone. Subsection 32A(2) also reaches a person providing credit assistance who knows, or is reckless as to whether, the annual cost rate exceeds 48%.
That makes characterisation matter twice. If a lender writes what it believes is commercial credit but the contract is actually regulated, the problem can be both licensing and pricing. The safer statement is therefore not "commercial lenders can charge anything". It is: the Code's 48% annual-cost-rate rule is not a general cap on every commercial loan, and other doctrines can still constrain price and enforcement.
A default rate can be unenforceable as a penalty where it is out of proportion to the legitimate interest being protected. Statutory unconscionability can reach the transaction or lending system as a whole. And the unfair contract terms regime in the section below can apply to standard-form small-business contracts even where the Credit Code does not.
The deadlines and ceilings fixed by statute
- 48%The annual cost rate prohibited by section 32A for the regulated credit contracts that section covers, subject to its express exclusions. The rate is a statutory ceiling, not a market return.National Credit Code ss 32A and 32B, rechecked 17 August 2026.
- 30 daysThe minimum period a default notice must allow a debtor to remedy the default before a credit provider can begin enforcement proceedings on a credit contract regulated by the Code.National Credit Code s 88(1)(b), read 15 August 2026.
- 20 business daysOne of the limbs of the registration timing rule for a company-granted security interest perfected only by registration. A late registration can create serious vesting risk on insolvency.Corporations Act 2001 (Cth) s 588FL(2)(b)(ii), read 15 August 2026.
- 13 business daysThe decision period relevant to a secured party with security over the whole, or substantially the whole, of a company's property when voluntary administration begins.Corporations Act 2001 (Cth) s 441A, read 15 August 2026.
- 9 Nov 2023The date from which proposing, applying or relying on unfair terms in covered standard-form small-business contracts became prohibited conduct rather than a regime concerned only with void terms.Australian Securities and Investments Commission, unfair contract terms reforms, read 15 August 2026.
General information only, and not financial advice. Every figure here is a statutory period, threshold or ceiling, not a private-lending price, approval timeframe or expected return. Statutory provisions change and the application of a rule depends on the contract and facts.
Source: National Credit Code, Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), ss 32A and 32B, Federal Register of Legislation, rechecked 17 August 2026.
How does a private lender make money, and what tax and GST applies?
A direct private lender can earn interest and contractually agreed fees, but the headline rate is not the lender's net return. Legal, valuation, registration, servicing, funding, tax, arrears, extensions and enforcement costs sit between the contracted price and the amount the lender ultimately keeps. Principal coming back is the return of the amount advanced, not the same thing as lending income.
For GST, the Australian Taxation Office treats the provision of a loan as an input-taxed financial supply. Its published financial-services guidance says no GST is payable on the loan itself, mortgage principal repayments or mortgage interest, and that establishment fees for the financial supply are not subject to GST. Income-tax treatment is a separate question and depends on the lender, the character of the receipt and whether the activity is an investment or a business of money lending.
| Amount or event | What it means commercially | The tax or GST question |
|---|---|---|
| Principal repayment | The borrower returns the capital advanced | It is different from interest or fee income; no GST is payable merely because mortgage principal is repaid |
| Interest | The price paid for the use of the lender's money | Interest is income to the lender under ordinary tax principles; the ATO says mortgage interest is consideration for an input-taxed financial supply and does not include GST |
| Establishment fee | An upfront amount charged under the loan terms | The ATO says establishment fees that are consideration for the financial supply are not subject to GST; income-tax character and timing still depend on the facts |
| Default, extension or other contractual amount | An amount that may arise because the loan changes, is extended or is not performed as agreed | Do not assume the tax or GST treatment from the label alone; the legal character of the payment and the underlying supply matter |
| Legal, valuation or servicing cost recovery | The borrower may reimburse or fund costs incurred around the loan | Treatment depends on whether the amount is a reimbursement, recoupment, fee or part of another supply; the underlying invoices and documents matter |
| A loan that becomes a bad debt | Expected income has become a capital-recovery problem and part of the principal may be unrecoverable | A bad-debt deduction is not automatic. Section 25-35 has conditions, including where the debt was previously included in assessable income or the money was lent in the ordinary course of a business of lending money |
Lending from a self managed super fund is a different question again, and it changed on 1 July 2026. A fund cannot lend or provide financial assistance to a member or a member's relative, which reflects section 65 of the Superannuation Industry (Supervision) Act 1993, and lending to a related party is an in-house asset restricted to 5% of the fund's total assets. Lending to a genuinely unrelated party must still be permitted by the investment strategy and made on arm's length terms under section 109, because income from a non-arm's length arrangement is taxed as non-arm's length income at the top rate.
Separately, Division 296 now applies an additional 15% to earnings attributable to a total super balance above the large super balance threshold, $3 million for 2026-27, and a further 10% above the very large threshold of $10 million. Both thresholds are indexed, the tax is assessed to the individual rather than the fund, and for 2026-27 the balance is measured at the end of the income year. None of this is a credit question and all of it is one for an accountant.
The last row is why a one-off wealthy individual should not model a default on the assumption that the tax system simply gives the principal loss back as a deduction. Whether you are carrying on a business of lending money is itself a facts-and-circumstances question. The same is true of choosing between an individual, company and trust: entity tax rates, distributions, franking and loss treatment are not interchangeable, so this guide does not publish a single "best structure" tax outcome.
Sources: Australian Taxation Office, Division 296 tax guidance and SMSF investment restrictions, read 15 August 2026; Superannuation Industry (Supervision) Act 1993 (Cth) ss 65, 109, read 15 August 2026; Australian Taxation Office, Financial services - questions and answers (loans, mortgage repayments and establishment fees); Income Tax Assessment Act 1997 (Cth) s 25-35 as published in the ATO Legal Database; ATO Taxation Ruling TR 98/1 on derivation of interest income, all rechecked 17 August 2026. Tax outcomes depend on the lender and facts and require tax advice.
What security can a private lender take, and when must you register it?
A private lender can take a registered mortgage over land, a security interest over personal property, a guarantee and, in some circumstances, an equitable interest protected by a caveat. They are not interchangeable. The instrument, ranking, registration and enforcement rights decide what the word "secured" actually means.
New lenders tend to focus on the value of the property. The earlier question is whether the lender has the legal interest it thinks it has, in the right name and priority, and whether another creditor can change that priority before or after settlement.
| Security | What it secures | Priority position |
|---|---|---|
| Registered first mortgage | The land, as a legal interest recorded on title | Generally first among registered mortgages, subject to the title and applicable law |
| Registered second mortgage | The land, behind the first-ranking mortgage | Subordinate to the first mortgagee and affected by the senior debt and any binding priority arrangements |
| Caveat | Nothing by itself; it gives notice of and protects the claimed unregistered interest from inconsistent dealings while it remains effective | A caveat does not itself create the underlying interest or confer mortgagee priority |
| Company security interest | Personal property within the security grant, which may include present and after-acquired property | Determined under the personal property securities regime and affected by perfection and timing |
| Personal guarantee | A personal promise to pay; it is not an asset security by itself | Unsecured against the guarantor unless separately supported by a mortgage or other security interest |
| Security | Where or how it is recorded | What it does not give you |
|---|---|---|
| Registered first mortgage | Registered on the state or territory land titles register | A claim over every other asset of the borrower |
| Registered second mortgage | Registered on title, with senior-lender consent or priority issues checked where relevant | Control over an enforcement run by the first mortgagee or protection from unlimited growth in senior debt unless the documents address it |
| Caveat | Lodged on the land title register to protect the interest claimed | A statutory mortgagee power of sale merely because the caveat exists |
| Company security interest | Usually perfected by registration on the Personal Property Securities Register where registration is the chosen perfection method | Any interest in land |
| Personal guarantee | Contained in the guarantee or loan documents; the promise itself is not registered on a public security register | Priority over secured creditors of the guarantor |
The registration timing rule that can strip a company security
If you take a security interest granted by a company and perfect it only by registration, section 588FL of the Corporations Act 2001 puts a clock on you. Where the company later goes into liquidation, administration, a deed of company arrangement or restructuring, the security interest vests in the company unless the registration happened before the latest of several times, one of which is the end of 20 business days after the security agreement that gave rise to the security interest came into force. Vesting means the interest becomes the company's. You are not a secured creditor who ranks behind someone; you are not a secured creditor at all.
The provision is more layered than a bare deadline, because the test is the latest of several times and includes a six month look back from the insolvency event. The practical rule most private lenders run is nonetheless unambiguous: register a company-granted security interest within twenty business days of the agreement coming into force, and treat any longer delay as a problem to be fixed by a court application rather than an oversight to be explained later. Land security is a different register and a different regime; if the loan takes both, both clocks run and neither one covers the other.
Where your money sits between advance and registration
Funds for a secured loan are normally held in a solicitor's trust account before settlement, and the obligations attaching to that money come from the legal profession legislation of the relevant state, not from your loan agreement. In Queensland, for example, the provision is section 249 of the Legal Profession Act 2007, headed Holding, disbursing and accounting for trust money.
The instrument that actually controls the release is usually a solicitor's undertaking, a personal professional obligation enforceable against the solicitor and governed by the Australian Solicitors' Conduct Rules, and in some structures the solicitor holds as stakeholder for both sides. Those three words, trust money, undertaking and stakeholder, are the vocabulary to use when you ask the question, and none of them is "escrow".
The gap that worries new lenders is the one between advancing money and seeing the mortgage on title. Two things narrow it. Electronic settlement, where it applies, collapses the gap because the transfer of funds and the lodgement of the dealing occur together rather than days apart.
And most jurisdictions provide a priority notice, a short-lived instrument lodged before settlement that reserves the priority of an intended dealing and blocks competing lodgements while it runs; in Queensland it sits at section 140 of the Land Title Act 1994. Ask your solicitor which of these applies to your transaction before you transfer anything, because the answer differs by state and by whether the dealing is electronic.
You advance against a property that already carries a first mortgage, and the borrower is a company. Walking the security steps in order: what does the valuation actually have to say, who is it addressed to, and are you entitled to rely on it, or was it instructed by someone else for another purpose? Does the first mortgage contain a further encumbrance covenant, and has the first mortgagee actually consented in writing rather than merely been told?
Is there a deed of priority setting out how much the first mortgagee can add to its debt before your position is eroded, and does it bind the first mortgagee or only recite an intention? Has the mortgage been lodged for registration on title, or is it sitting in a solicitor's file? And separately from all of that, has the company-granted security interest been registered on the personal property securities register inside the statutory window? The last question is the one that gets missed, because the land security feels like the real security and the personal property registration feels like housekeeping.
It is not housekeeping. The registered mortgage and the loan to value ratio answer different questions from the registration deadline, and a file can be right on the first two and lost on the third. A borrower-side note on taking two properties as security shows the same structure from the other seat.
Sources: Corporations Act 2001 (Cth) s 588FL, read 15 August 2026 (Corporations Act on the Federal Register); Real Property Act 1900 (NSW) as an example of a state land titles regime, NSW Legislation, read 15 August 2026; Legal Profession Act 2007 (Qld) s 249 and Land Title Act 1994 (Qld) s 140 as jurisdictional examples, read 15 August 2026. Caveat, mortgage, trust account and priority notice procedure differ by state and territory.
Do private lenders have to register or enrol with AUSTRAC?
For most private lenders the relevant AUSTRAC step is enrolment, not registration. If you provide a designated service with the required geographical link to Australia, you must enrol with AUSTRAC. Registration is an additional process that AUSTRAC says typically applies to remittance and specialised virtual-asset service providers.
AUSTRAC changed its designated-service names in 2026. The former "Loan services" label now maps to current service names including "Making loans" and "Guaranteeing loans". That matters because a new lender should test the actual service it provides rather than asking whether a business called a "private lender" is regulated as a category. The regime follows the service.
Where you are a reporting entity, the obligation is operational rather than a one-off form. AUSTRAC's current regime includes an AML/CTF program, a compliance officer, customer due diligence, ongoing due diligence, reporting and record-keeping obligations. The current enrolment guidance says a person who starts providing a designated service must apply to enrol no later than 28 days after starting that service.
If your first borrower is the moment you discover that your lending activity is a designated service, you are already building the compliance system while handling a live transaction. The better sequence is to determine whether your proposed lending activity is covered, establish the program and customer-onboarding process that follows, and only then accept a file that needs to be identified, risk-rated and monitored.
Sources: AUSTRAC, Enrol with us overview, Designated service name changes and New reporting regime now in force, all read 17 August 2026; Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), current version.
What due diligence should a private lender do before funding a loan?
Before committing to fund, a private lender should independently verify the borrower, genuine purpose, existing debt, security, valuation, priority and exit rather than treating a broker submission or signed declaration as the evidence itself. The searches change with the borrower and security, but the principle is constant: every fact that decides whether you are repaid should be capable of being traced to a document, register, professional report or other primary evidence; for fund structures, see the fund due diligence guide.
The fan-out around a first deal is wider than "check the LVR". A property can be valuable and still be poor security if the wrong entity owns it, another creditor ranks ahead, statutory charges reduce the equity, the valuation cannot be relied on, or the exit requires an event that has never been tested.
| Check | What to verify | Why it changes the lending decision |
|---|---|---|
| Borrower and entity | Legal name, ABN or ACN where relevant, registration status, directors or trustees, authority to borrow and who receives the economic benefit | The loan, purpose evidence and security need to attach to the real transaction rather than a convenient label |
| Directors and guarantors | Identity, relevant company history, banned or disqualified status where relevant, and personal insolvency history where there is a lawful reason to search | A guarantee is only as useful as the person behind it, and personal insolvency can change what that promise is worth |
| Purpose and use of funds | Where the advance will actually go, with invoices, payout figures, contracts, settlement statements or another contemporaneous evidence trail | Purpose drives the Credit Code analysis and can expose a structure that does not match the documents |
| Existing personal-property security | PPSR searches using the correct grantor or serial-number criteria where personal property matters | Another secured party may already rank ahead, and an incorrect search can miss registrations that affect recovery |
| Land title and property outgoings | Registered ownership, mortgages, caveats and other dealings, plus relevant rates, land-tax or statutory searches for the jurisdiction | The headline property value is not the same as the equity available to your security after prior interests and charges |
| Valuation | Who instructed it, who can rely on it, valuation basis, market evidence, assumptions, property-specific risks and whether the value is current enough for the decision | A valuation addressed to somebody else or prepared on the wrong basis may not support the risk you think it does |
| Senior debt and priority | Current payout, further-advance or all-moneys exposure, consent requirements, deed of priority and who controls enforcement if you rank second | The debt ahead of you can erode the equity and restrict what you can do on default |
| Exit | The event expected to repay the loan and evidence that it can realistically occur before maturity, plus a fallback if it does not | A stated refinance, sale or receipt is not the same thing as evidence that it can repay the debt on time |
ASIC's public register guidance is useful for checking companies and their directors; AFSA's National Personal Insolvency Index records specified personal insolvency proceedings; and the PPSR expressly says lender searches can reveal prior security interests over personal property. None of those searches tells you whether the loan is a good deal by itself. They are evidence inputs into the credit decision.
Sources: Australian Securities and Investments Commission, Check another business is trustworthy; Personal Property Securities Register, organisation grantor search and individual grantor search; Australian Financial Security Authority, National Personal Insolvency Index, all read 17 August 2026. Search rights, permitted purposes and property procedure differ by register and transaction.
What does your first private loan look like from deal to repayment?
A private loan is not finished when the money leaves the lender's account. The real workflow runs from origination and underwriting through legal documentation, settlement, servicing, maturity and, if necessary, enforcement. A first-time lender should know who owns each step before approving the deal.
At minimum that usually means a lawyer who acts for the lender, an appropriately instructed valuer where property value matters, and tax or accounting advice on the lender structure. A broker, originator or mortgage manager can supply or administer a file, but the lender still needs to know which decisions have been delegated and which remain theirs.
Who is around the table on a first private loan?
| Role | What they commonly contribute | What the lender still owns |
|---|---|---|
| The lender | Capital and the final credit decision | Knowing the borrower, purpose, security, risk, documents and delegated authorities well enough to make that decision |
| Lender's solicitor | Advice on the transaction, loan and security documents, settlement requirements and enforcement rights | Commercial instructions and the decision whether the documented position is one the lender is willing to accept |
| Finance broker or originator | The borrower relationship, initial deal information and a packaged submission | Independent verification and the decision whether the real borrower, purpose and exit fit the lender's lane |
| Valuer | An independent valuation prepared on the instructed basis for the named client and purpose | Reading the basis, assumptions, reliance and property risks rather than reducing the report to one number |
| Accountant or tax adviser | Advice on the lender entity, accounting and tax consequences | Keeping tax structure separate from credit, security and regulatory characterisation |
| Servicer or mortgage manager, if used | Payment administration, monitoring, borrower communication and agreed servicing functions | Knowing exactly which powers were delegated and who can make decisions on waivers, notices, extensions and enforcement |
| Stage | What happens | What the lender needs to know |
|---|---|---|
| Deal arrives | The borrower, purpose, amount, security, existing debt, timing and proposed exit are presented | Whether the borrower and purpose fit the lender's legal and credit lane before time is spent structuring around a bad fit |
| Underwriting | Identity, entity, purpose, title, valuation, senior debt, capacity or exit and adverse information are tested | Which facts are independently verified and which are only assertions in a submission |
| Terms and documents | Commercial terms are agreed and the loan, mortgage, guarantees, security interests and priority documents are prepared | Who the actual parties are, what defaults exist, what can be enforced and what must happen before funds can be released |
| Settlement and registration | Funds are released through the settlement process and the required security dealings are lodged or perfected | That money and security move in the intended sequence and every relevant register is dealt with |
| Servicing and monitoring | Payments, covenants, insurance, project milestones and other agreed conditions are monitored | Who notices a missed payment or covenant breach first and who has authority to respond |
| Maturity and discharge | The borrower repays from refinance, sale or another agreed exit, a payout is calculated and security is released | Whether the exit remains real before maturity rather than discovering at maturity that it was only a sentence in the original submission |
| Arrears or default | The contract, statutory notice requirements, security, insolvency position and enforcement options are reviewed | Who instructs the lawyer, who controls the mortgage and how costs and recovery proceeds rank |
Before you say yes to the first deal
- Who is the legal borrower, and who actually receives the benefit? The entity on the documents and the economic substance should tell the same story.
- What will every dollar actually be used for? Purpose affects the Credit Code analysis and should be evidenced before settlement, not reconstructed after a complaint.
- What security will you really hold? Confirm ownership, registration, ranking, existing encumbrances and any consent or priority arrangement rather than relying on the phrase "property backed".
- What does the valuation let you rely on? Read who instructed it, who may rely on it, the valuation basis, assumptions and any material qualifications.
- What debt ranks ahead of you, and can it grow? A second-ranking position is affected by the senior lender's actual debt and rights, not only by today's payout figure.
- How is the loan meant to be repaid? Separate a stated exit from evidence of that exit, whether it is a refinance, sale, contracted receipt or another source.
- What happens if repayment is late? Know the notice path, who can agree an extension, what costs may arise and who controls enforcement before there is pressure to improvise.
- Where will the complete file live after settlement? The documents, valuation, searches, registrations, correspondence, payment history and decisions need to remain retrievable for the life of the loan.
The underwriting and the back end are one system. A lender who cannot explain what happens after a missed payment has not finished designing the product they are about to fund.
What happens after settlement, and how should a private loan be serviced?
After settlement, somebody must maintain the loan record, track payments and obligations, monitor the security and exit, manage maturity and extensions, and escalate arrears before they become an improvised enforcement file. A private lender can outsource parts of that work, but outsourcing the task does not answer who has authority to make the credit decision when something changes.
| Stage | What should be controlled | The question the lender should be able to answer |
|---|---|---|
| Loan ledger and payments | Advance amount, interest treatment, fees, borrower payments, capitalised amounts and the current payout position | What is actually owing today, and can the calculation be reconstructed from the file? |
| Security file | Executed documents, registration evidence, search certificates, priority documents, guarantees and any later changes | What security do I hold now, in what priority, and did anything change after settlement? |
| Covenants and property protections | Any agreed insurance, reporting, project, property, financial or other covenants that matter to the particular loan | Which breach would tell me the risk changed before a payment is actually missed? |
| Exit and maturity diary | Maturity date, refinance or sale progress, conditions that need lead time and contact points before the due date | Is the repayment event still credible early enough to act if it is not? |
| Extension request | Updated borrower position, security value, senior debt, exit evidence, legal documents and authority to approve the change | Am I extending the original credit decision on updated evidence, or merely postponing a problem? |
| Discharge | Payout calculation, receipt of cleared funds, release of mortgage or other security and closure of the loan file | Has every secured obligation actually been satisfied before the security is released? |
| Arrears or covenant breach | Notice dates, borrower communications, legal instructions, updated recovery position and decisions about forbearance or enforcement | Who has authority to act, what notice regime applies and what does delay do to recovery? |
How do you manage risk across several private loans?
Once there is more than one loan, the lender also has a portfolio problem. Useful internal controls include exposure by borrower or related group, property and security type, first- versus second-ranking position, geography, introducer, maturity date, undrawn commitments and watchlist or arrears status. These are not statutory portfolio limits for a person lending only their own money; they are a way to stop several individually acceptable loans from creating one concentrated risk.
A servicing system can be as simple or sophisticated as the book requires, but the file needs an audit trail. If the answer to "why did we extend this loan?" or "when did we first know the exit slipped?" exists only in one person's memory, the operating system is not finished.
When does lending other people's money become a managed investment scheme?
Using other people's capital can move you out of the simple own-money lending route and into the financial-product regime. A managed investment scheme is one important boundary: broadly, people contribute money for rights to benefits, the contributions are pooled or used in a common enterprise, and the members do not have day-to-day control. All three elements matter.
Section 765A of the Corporations Act 2001 is why lending your own money, on your own account, does not need an Australian financial services licence, as the credit-licensing section sets out: the loan is not a financial product, so the financial services regime does not reach it. The moment other people's money is involved, a different definition can engage.
Under section 9 of the same Act, a managed investment scheme is a scheme with these features: people contribute money or money's worth as consideration to acquire rights to benefits produced by the scheme; any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people who hold interests in the scheme; and the members do not have day to day control over the operation of the scheme.
All three limbs, not one. An interest in a scheme is a financial product even though the underlying loans are not, which is the asymmetry that catches people who reason from "credit facilities are exempt" to "therefore my arrangement is exempt".
Registration is a further step again. Section 601ED requires a managed investment scheme to be registered if it has more than 20 members, or if it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes, or if a determination by the regulator aggregating related schemes takes the total above twenty. Note the second limb has no member count in it at all. A promoter in the business of promoting schemes triggers registration regardless of size.
This section is deliberately scoped to the boundary test and stops there. How a registered scheme operates, what a responsible entity does, who counts as a wholesale client and what a compliance plan contains are separate subjects with their own thresholds, and stating a threshold figure here without reading the current regulation would be the exact error this guide is written against.
The consumer regulator's plain-language description of the arrangement, where investors' money is on lent as mortgage loans to a range of borrowers, is a useful check on whether what you are describing to yourself as private lending is in fact a pooled arrangement. If it is, the next question is not legal but practical, and it is the one the next section answers.
Sources: Corporations Act 2001 (Cth) ss 9, 601ED, 765A, read 15 August 2026 (Corporations Act, compiled text); Moneysmart glossary, read 15 August 2026.
What if a platform or manager offers to make you a private lender?
First work out whether the arrangement actually makes you the lender or makes you an investor in someone else's lending structure. If a manager chooses the loans, pools capital, controls the borrower relationship or holds the mortgage for a group of investors, the words "direct lender" or "private lender" in the pitch do not answer the legal question. Identify the entity advancing the money, the entity named on the security, the rights you receive and who can make decisions after default.
Then use the public registers, because they are checks that do not depend on what the promoter tells you. ASIC maintains searchable registers of Australian credit licensees and Australian financial services licensees, as well as banned and disqualified persons and published insolvency notices. The point is not that every direct commercial lender must appear on the credit-licensee register; this guide has already explained why that is wrong. The point is to verify any licence or regulated structure that is actually claimed, and to compare the register position with the structure described in the documents.
Then check the documents against the structure. An arrangement that pools money from several investors and lends it out is likely a managed investment scheme, and the managed-investment-scheme section sets out the three limbs. If it is one, ask which entity is the responsible entity, whether the scheme is registered, and what licence authorises it.
If you are being told the arrangement sits outside all of that because you are a wholesale or sophisticated investor, that classification has its own statutory tests and its own certificate requirements, and being told you qualify is not the same as qualifying. The offer document is worth reading for what is absent: an information memorandum is not lodged with, reviewed by or approved by the regulator and has no prescribed content, so two documents for similar arrangements can disclose very different amounts and neither is defective for it.
A note on dispute resolution, because it is easy to misread. AFCA membership follows the regulatory position of the financial firm and the products or services it provides; it is not a generic quality badge for every private-credit arrangement. Where membership is claimed, verify the firm on AFCA's public register rather than relying on marketing material.
Three questions close most of the remaining gap. Whose name is on the mortgage, and is it yours or a manager's? Who holds the borrower relationship if the loan defaults, and who decides whether to enforce? And what happens to your money between the day you commit it and the day it is drawn, which the security-and-registration section covers. None of those is answered by a return figure, and a promoter reluctant to answer them in writing has told you something.
Sources: Australian Securities and Investments Commission professional registers, banned and disqualified persons register and published notices register, and the Australian Financial Complaints Authority financial firm register, all read 15 August 2026.
Can a court strike out terms in your loan contract?
Yes, and since 9 November 2023 it does more than strike a term out: proposing, applying or relying on an unfair term in a standard form small business contract is itself a contravention carrying penalties. Being outside the Credit Code does not mean being outside the law. The regulator's own summary of the change states that reforms will make unfair contract terms illegal, attracting substantial penalties, with each unfair term forming a separate contravention. Before that date a court could declare a term void. After it, the conduct is the contravention.
The penalties are not nominal. The maximum for a corporation is the greater of $50 million, three times the value of the benefit obtained from the conduct, or 30% of adjusted turnover during the breach period. For an individual it is $2.5 million.
The coverage test has two parts. A business is a small business for this purpose if it employs fewer than 100 people or has a turnover of less than $10 million for the previous income year. For contracts for financial products or services, the regime under section 12BF of the Australian Securities and Investments Commission Act 2001 applies where the upfront price payable for the contract is less than $5 million, with interest disregarded in working out that price. A great deal of private lending sits inside both.
What this means at the drafting desk is that the standard form loan agreement a private lender reuses across a book is exactly the document the regime is aimed at. Terms that let one party vary, terminate or renew unilaterally, terms that penalise breach by one party only, and terms that let one party unilaterally determine whether the contract has been breached are the recognised examples.
The point is not that such terms are unusable in every case; it is that a term which is not reasonably necessary to protect the lender's legitimate interests, causes significant imbalance, and would cause detriment if relied on, is now a contravention rather than a risk. The borrower-side view of what a lender looks at is set out in the note on what lenders check on a business-purpose second mortgage.
| Regime | What triggers it | What it requires | Where to check |
|---|---|---|---|
| National Consumer Credit Protection Act and the National Credit Code | A credit contract meeting all four limbs of section 5 of the Code | An Australian credit licence or authorisation where required, consumer-credit conduct obligations, and the 48% annual-cost-rate prohibition where section 32A applies, subject to its express exclusions | Federal Register of Legislation; ASIC Regulatory Guide 203 |
| Unfair contract terms under the corporate regulator's Act | A standard form contract with a small business, within the employee, turnover and upfront price thresholds | No unfair terms. Each unfair term is a separate contravention | Section 12BF of the ASIC Act; the regulator's unfair contract terms guidance |
| Statutory unconscionability | Conduct in connection with the supply of financial services, including a lending system as a whole | Conduct that is not unconscionable, assessed on the facts and on the system, not only on the documents | Section 12CB of the ASIC Act; Stubbings v Jams 2 Pty Ltd [2022] HCA 6 |
| Anti-Money Laundering and Counter-Terrorism Financing Act | Providing a designated service with a geographical link to Australia | Enrolment, customer identification, ongoing due diligence, reporting, a compliance programme | Section 6 of the Act; the financial intelligence regulator's guidance |
| Corporations Act, managed investment schemes | Pooled contributions, a common enterprise, and members without day to day control | Possible registration, a responsible entity, an Australian financial services licence, disclosure | Sections 9, 601ED and 765A of the Corporations Act |
| Personal property securities regime and corporate insolvency | Taking a security interest granted by a company, perfected by registration | Registration inside the statutory window, or the interest vests in the company on insolvency. A separate 13 business day decision period applies on a voluntary administration | Sections 588FL and 441A of the Corporations Act |
| State and territory land titles legislation | Taking a mortgage or lodging a caveat over land | Registration or lodgement, notice requirements, priority notice procedure and lapsing rules that differ by jurisdiction | The land titles and property law Acts of the state or territory where the land is |
Sources: Australian Securities and Investments Commission, Unfair Contract Terms reforms commence and Unfair contract term protections for small businesses, both read 15 August 2026; Australian Securities and Investments Commission Act 2001 (Cth) ss 12BF, 12CB, read 15 August 2026.
What happens when a private borrower defaults?
On default, a private lender does not simply "take the property". The enforcement path depends on whether the loan is regulated, the contract and notices, the security actually held, its priority, the borrower's insolvency position and the property law of the relevant state or territory. Those are decisions made long before the missed payment.
If the loan is regulated by the Code, the statutory floor applies. A credit provider must not begin enforcement proceedings unless the debtor is in default, and unless the credit provider has given the debtor and any guarantor a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default, and the default has not been remedied in that period.
If the loan is genuinely commercial and outside the Code, that mandated period does not apply, and what governs is the loan contract, the security documents, the general law and the notice regime in the relevant state legislation. That is a real difference in the lender's favour, and it is also the difference that makes the Credit Code test worth running properly: a lender who assumed the loan was commercial and was wrong has not merely mislabelled a file, it has enforced without a notice the statute required.
Outside the Code, the state legislation still bites, and it is not static. Queensland replaced its Property Law Act 1974 with the Property Law Act 2023, which commenced on 1 August 2025. Part 8 of the new Act governs mortgages: section 114 restricts the exercise of a power of sale until a notice to remedy the default has been given and the compliance period has run, and section 116 imposes a duty on the mortgagee to take reasonable care to sell at market value which, on prescribed mortgages, cannot be contracted out of.
That last point is worth sitting with on a page about what your documents give you. Some obligations do not care what your documents say. Check the current position in the state where the land is before you rely on anything in this paragraph, because the equivalent provisions differ and Queensland's are barely a year old.
Corporate borrowers add a further clock. Where a company goes into voluntary administration, a statutory moratorium stops most enforcement, but a secured party holding a security interest over the whole, or substantially the whole, of the company's property may enforce before or during a decision period of 13 business days from receipt of notice of the administrator's appointment, under section 441A of the Corporations Act.
Lenders overestimate this exception. It requires security over substantially everything, and an appellate court has held that security over 68% by value of a company's assets did not meet that description. A general security agreement that leaves material assets uncovered may not buy you the exception at all.
The second asymmetry is the complaints machinery. A credit licensee must, under section 47 of the National Consumer Credit Protection Act, have an internal dispute resolution procedure and be a member of the AFCA scheme. External dispute resolution reaches financial firms that are members of the scheme.
A private lender operating outside the licensing regime is therefore usually outside that scheme too, which sounds like an advantage and is a mixed one: the borrower's route is then a court rather than a free and relatively quick external process, and courts are where unconscionability, unfair terms and the validity of a business purpose declaration all get decided at once. The external dispute resolution body defines a small business as an organisation with less than 100 employees, so a great deal of commercial lending would sit inside its jurisdiction if the lender were a member.
A default position that holds up
- Purpose evidence collected before settlement, not reconstructed after default
- The borrower on the loan documents is the entity that took the benefit
- Security registered, on the right register, inside the statutory window
- First mortgagee consent and any priority arrangement in writing and binding
- A standard form contract reviewed against the unfair terms thresholds
- A valuation instructed for the security actually taken, and addressed to you
Where lender files fall over
- A signed declaration and no record of any inquiry behind it
- A company borrower with no assets, no trading and no benefit from the money
- Certificates of advice from professionals introduced by the lender's side
- Personal property registration treated as post-settlement housekeeping
- A second ranking position taken on the assumption the first mortgagee will consent
- An exit that depends on a sale nobody has tested against the market
From the underwriter's seat
Switchboard brokes for borrowers, not lenders, and places borrower files with private funders. What follows is the underwriting lens applied to files we see from the borrower's side, which is the side that reveals where a lender's documentation was thin.
- Private loans rarely fall over on the credit assessment. They fall over at the security step, and usually because the instrument taken did not match the security the lender believed it had.
- The exit matters more than the pricing, and it is the part of the file most often described rather than evidenced. An exit that is a sentence in a submission is not an exit; an exit is a signed contract, an approval in principle from a takeout financier, or a marketing campaign with a history.
- A first mortgagee's further encumbrance covenant does more damage to a second ranking position than most lenders expect, because it can allow the senior debt to grow after your advance without your consent, quietly eroding the equity your position was sized against.
- Where borrower purpose evidence is thin, the exposure is not merely regulatory. It converts a commercial enforcement into a contested one, and the contest happens at the worst possible moment.
- A valuation has to say what you need it to say before you advance, not afterwards, and it has to be addressed to you. A market appraisal, a valuation addressed to another party, or one instructed on a different basis is not a document you can rely on, and reliance is a defined thing in valuation practice rather than a courtesy.
Observations from broking files, not lending criteria, not an assessment of any particular arrangement, and deliberately free of figures. Nothing here is a rate, a cost, an approval likelihood or a return.
Sources: National Credit Code s 88, and National Consumer Credit Protection Act 2009 (Cth) s 47(1)(i), both read 15 August 2026; Corporations Act 2001 (Cth) s 441A, read 15 August 2026; Property Law Act 2023 (Qld) ss 114, 116, read 15 August 2026; Australian Financial Complaints Authority, Small businesses with a financial complaint, read 15 August 2026.
Where do private lenders find borrowers?
Private lenders commonly source borrowers through finance brokers, solicitors and conveyancers, accountants, mortgage managers or originators, repeat relationships and direct enquiries. The source changes what information arrives with the file; it never replaces the lender's own obligation to verify the borrower, genuine purpose, security and exit.
This is where the searcher's journey changes from "can I do this?" to "how do I build a repeatable book?". A good origination channel does not make weak credit strong, but it can determine whether the lender receives a structured commercial file or starts every enquiry by reconstructing the borrower, purpose and security from scratch.
| Source | What usually arrives with the deal | What you still have to verify yourself | Main lender-side check |
|---|---|---|---|
| Finance brokers | A packaged file covering entity, purpose, security, timing and a proposed exit | That the submission matches source evidence and the purpose and exit survive independent checking | Do not outsource legal characterisation or valuation reliance merely because the file is well presented |
| Solicitors and conveyancers | A transaction already tied to a contract, settlement date, title or dispute | Why the money is needed, who benefits, what urgency changes and whether the security can actually be taken | Urgency is a fact to underwrite, not a reason to skip underwriting |
| Accountants | Business-purpose enquiries with tax, cash-flow or financial information already available | The actual use of funds, the borrower entity, security and the exit | Do not confuse a business owner with a business-purpose loan |
| Mortgage managers and originators | A structured facility that may already have underwriting, servicing and document processes around it | Who is lender of record, who holds the mortgage, what authority the manager has and who controls default decisions | Know which rights you own and which functions you have delegated |
| Direct enquiries and repeat borrowers | Anything from a complete repeat file to a single request for fast money | Identity, purpose, entity, security, capacity or exit, existing debt and adverse information on every transaction | Familiarity with the borrower is not evidence for the new loan |
How should you vet a broker, introducer or mortgage manager?
Start with role clarity rather than the referral relationship. Ask who the person acts for, what activity they perform, who pays them, whether they or a related party receive any other fee, who owns the borrower relationship, who controls the loan documents and servicing, and what authority they have once the loan is in arrears. If they claim to hold a licence, authorisation or professional status, verify that claim on the relevant public register rather than relying on a logo or certificate.
Do not turn that into the opposite rule. An Australian credit licence is activity-dependent, so the absence of an ACL is not by itself proof that a person involved in a genuine commercial-only transaction is acting unlawfully. The useful test is whether the role they are actually performing requires the permission they claim to have, and whether the economics or related-party relationships create a conflict the lender needs to understand.
What changes after the first loan?
After one loan, the problem changes from completing a transaction to running the same decision well more than once. That is when an informal preference becomes a written lending lane: which borrower and purpose types you will consider, which security and ranking positions you will accept, what evidence every file must contain, who may instruct valuers and lawyers, how portfolio exposure is monitored, who services the loan, and what happens when maturity or a covenant is missed. The point of documenting the lane is not bureaucracy. It stops the next urgent deal from quietly rewriting the rules you thought you had.
The repeatable version of private lending is therefore not "find a high rate". It is a pipeline in which every source is converted into the same core evidence: real borrower, real purpose, real security, real priority, real exit and a documented decision. Switchboard brokes for borrowers and places files with private funders, so the useful conversation from this side is what a properly packaged borrower file looks like when it lands on a lender's desk.
What Switchboard does and does not broker is set out on the private lending page, and the borrower-side view is in the companion guide to how private lending works. Borrowers who want their own file assessed can check eligibility.
Becoming a private lender in Australia starts with a fork that the SERP usually skips: are you lending your own money, investing through somebody else's lending structure, or building a vehicle that uses other people's capital? This guide follows the first route. The direct lender then has to choose its lending lane and entity, run the National Credit Code test before relying on labels, establish AUSTRAC and record controls, independently verify the borrower and security, understand the difference between gross loan income and net return, take and register the right security, and know how the loan will be serviced from settlement through maturity and default.
A business-purpose declaration is evidence, not immunity. A company borrower can be genuine, but a shell company is not a universal safe harbour. The Code's 48% annual-cost-rate rule is not a blanket cap on every commercial loan, and a contracted rate is not the same thing as after-cost or after-tax return. Once other people's money is pooled or managed, a different financial-services analysis can begin. The repeatable lending business is the system around the loan: origination, due diligence, documentation, security, servicing, portfolio control, maturity and enforcement.
Key takeaway: decide the route first, then build the legal, underwriting and operating system before the first borrower forces you to test it.Frequently Asked Questions
Only if the activities you engage in require one. Providing credit under a credit contract regulated by the National Credit Code is credit activity and generally requires an Australian credit licence or an authorisation. Genuine commercial-only lending can sit outside that regime. The answer therefore turns on the actual borrower, purpose and contract, not on the label private lender.
Yes. Lending money privately is lawful, but different laws apply depending on the borrower, purpose, structure and source of capital. Unlicensed regulated credit activity, artificial structuring designed to avoid consumer protections, defective security, AML/CTF failures and financial-product or managed-scheme issues are separate risks. "Private" does not mean unregulated.
Not to members or their relatives. Section 65 of the Superannuation Industry (Supervision) Act 1993 prohibits it, and lending to a related party is an in-house asset restricted to 5% of the fund's total assets. Lending to an unrelated party must still be permitted by the investment strategy and made on arm's length terms under section 109, or the income is taxed as non-arm's length income at the top rate.
From 1 July 2026 Division 296 also applies an additional 15% to earnings attributable to a total super balance above $3 million, and a further 10% above $10 million. Fund lending is a superannuation and tax question before it is a private lending one, and needs an accountant.
Ordinary lending of your own money under a credit facility does not, by itself, make that credit facility a financial product. An Australian financial services licence can become relevant if the wider business also issues, deals in or manages financial products, including interests in a managed investment scheme offered under an information memorandum. That is separate from the Australian credit licence question.
Usually yes on a commercial loan, but a default rate that is out of all proportion to the legitimate interest the lender is protecting is unenforceable as a penalty at general law. That makes default interest the term most often tested rather than the ordinary rate.
On a standard form contract with a small business it is also exposed to the unfair contract terms regime, and on a regulated credit contract the whole price sits under the section 32A annual cost rate prohibition, which counts fees and charges rather than the headline rate alone. Draft the default rate as a genuine pre-estimate of the cost of the borrower being late, and record how it was arrived at before you need to rely on a registered mortgage to recover.
A genuine company borrower is ordinarily outside the Code's natural-person debtor limb, but a company name is not a universal legal safe harbour. In Stubbings v Jams 2 Pty Ltd [2022] HCA 6, the High Court dealt with an unconscionable asset-based lending system involving a company with no assets that never traded and pro-forma advice certificates. The lesson is to distinguish a real company borrower from an artificial wrapper, not to treat the case as a rule that every company loan is regulated consumer credit.
For most private lenders the relevant AUSTRAC step is enrolment, not registration. If you provide a designated service with the required geographical link to Australia, you must enrol. AUSTRAC's current service names include "Making loans" and "Guaranteeing loans". Enrolment is a step to complete before your first private loan, not after it. Registration is an additional process that typically applies to remittance and specialised virtual-asset service providers.
It is industry shorthand, not a statutory status, and it is worth treating with suspicion. What people mean is that the loan is not a credit contract regulated by the National Credit Code, so the licensing and responsible lending obligations in the National Consumer Credit Protection Act are not engaged. Whether that is true depends on the four limbs in section 5 of the Code, tested against the actual borrower and the genuine purpose.
A loan is not exempt because a broker described it that way, because a declaration was signed, or because a company appears on the contract. The borrower-side note on where the purpose test actually bites shows the same question from the other seat.
A genuinely private arrangement can be outside the National Credit Code where the statutory limbs are not met, but a family relationship is not itself an exemption, and money secured over a home still needs a properly documented registered mortgage. Charging for credit, doing it in the course of a lending business, the identity of the debtor and the purpose of the loan all matter. If property security is taken, the security still needs to be documented and registered correctly.
No single rule says that every person making a private loan must first form a company. The lender can be an individual or another properly established entity, but the choice affects ownership of the loan and security, tax, administration and succession. An ABN is also not a lending licence, and it does not change how private lending works for the borrower.
The Australian Business Register says an entity is entitled to an ABN if it is carrying on or starting an enterprise in Australia, making relevant supplies, or is a Corporations Act company. Someone building a systematic lending operation should settle the entity, ABN, accounting and record-keeping position with their accountant and lawyer before the first settlement.
Not merely because you are lending your own money directly. Wholesale and sophisticated investor tests are concepts used in the financial-product and disclosure regimes. They become highly relevant when someone offers you an interest in a fund, syndicate or other investment structure, usually documented in an information memorandum. If a platform says you must qualify as wholesale, that is a signal to identify what financial product or service you are actually acquiring.
Ordinary direct lending of your own funds without taking deposits does not, by that fact alone, make you an authorised deposit-taking institution. The analysis changes if a business accepts repayable money from other people or the public to fund its lending. That can raise Banking Act questions, alongside the scheme boundary set out on the private lending page, as well as the managed-investment-scheme and financial-services issues discussed in this guide.
What sources support this guide?
The legal and regulatory claims on this page are anchored to legislation, regulator guidance and decided cases rather than copied from other private-lending pages. The page was reviewed again on 17 August 2026 to update the section 32A wording, AUSTRAC terminology, the status of the Oak Capital proceeding and the distinction between direct own-money lending, investing through somebody else's lending structure and raising or pooling other people's capital.
Three propositions deserve special care because they are repeatedly flattened in search results: a commercial-only lender is not automatically required to hold an Australian credit licence; a genuine company borrower is different from an artificial shell but Stubbings is an unconscionability case, not a shortcut for deciding Code coverage; and AUSTRAC now distinguishes enrolment from registration while using current service names including "Making loans" and "Guaranteeing loans".
| Source | What it supports | As at |
|---|---|---|
| National Consumer Credit Protection Act 2009 (Cth), ss 6, 29, 47 | The meaning of credit activity, the prohibition on engaging in credit activity without a licence, and the general conduct obligations of licensees including dispute resolution and compensation arrangements | Read 15 Aug 2026 |
| National Credit Code, Schedule 1 to that Act, ss 5, 13, 32A, 88 | The four limbs that decide when the Code applies, including the residential investment purpose limbs; the business purpose declaration presumption and when it is ineffective; the 48% annual-cost-rate prohibition, the application and express exclusions in section 32A, its extension to credit assistance, and the minimum default notice period | Read 15 Aug 2026 |
| ASIC Regulatory Guide 203, Do I need a credit licence? | What constitutes credit activity, the circumstances in which a licence is not required, and the regulator's statement on holding both a credit licence and an AFS licence | Read 15 Aug 2026 |
| ASIC media releases 25-060MR (16 April 2025) and 25-301MR (12 December 2025) | The Federal Court liability finding of 15 April 2025, the wording on ineffective declarations and reasonable inquiries, the presumption that the loans were consumer loans, and the combined penalties of $515,000 imposed on 12 December 2025 | Read 15 Aug 2026 |
| ASIC media release 24-243MR (30 October 2024), as updated in 2026 | The unresolved allegations about a company-borrower lending model said to avoid the operation of the Code; the 22 May 2026 liquidation of the two Oak Capital entities; and ASIC's 4 June 2026 application for leave to continue the proceeding | Rechecked 17 Aug 2026 |
| Stubbings v Jams 2 Pty Ltd [2022] HCA 6 | The High Court unconscionability decision concerning an asset-based lending system, a borrower company with no assets that never traded, artificial advice certificates and the role of the company interposition in the Court's assessment | Rechecked 17 Aug 2026 |
| Corporations Act 2001 (Cth), ss 9, 441A, 588FL, 601ED, 765A | The three-limb definition of a managed investment scheme; the 13 business day decision period for a secured party on a voluntary administration; the vesting of an unregistered company-granted security interest and the twenty business day limb; the registration triggers for a scheme; and the exclusion of a credit facility from the definition of a financial product | Read 15 Aug 2026 |
| Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), with current AUSTRAC enrolment and designated-service guidance | Designated services and geographical link as the trigger; the distinction between enrolment and registration; current designated-service names including "Making loans" and "Guaranteeing loans"; ongoing AML/CTF program and customer-due-diligence obligations | Rechecked 17 Aug 2026 |
| Australian Securities and Investments Commission Act 2001 (Cth), ss 12BF, 12CB, with ASIC unfair contract terms guidance | The commencement date, each unfair term as a separate contravention, the maximum penalties, the small business employee and turnover thresholds, the upfront price limit for financial products and services, and statutory unconscionability | Read 15 Aug 2026 |
| Property Law Act 2023 (Qld), ss 114, 116; Land Title Act 1994 (Qld), s 140; Legal Profession Act 2007 (Qld), s 249 | As jurisdictional examples only: the restriction on exercising a power of sale, the non-excludable duty to sell at market value on prescribed mortgages, priority notices, and the holding and disbursing of trust money. The Property Law Act 2023 commenced 1 August 2025 and replaced the 1974 Act | Read 15 Aug 2026 |
| Australian Financial Complaints Authority, small business guidance | The definition of a small business for external dispute resolution purposes | Read 15 Aug 2026 |
| Banking Act 1959 (Cth), s 5 | The definition of banking business and the requirement for both deposit taking and making advances | Read 15 Aug 2026 |
| Australian Taxation Office, SMSF investment restrictions, with Division 296 guidance and TR 94/32 | The prohibition on loans and financial assistance to members and relatives, the in-house asset limit, arm's length requirements, the Division 296 thresholds and rates from 1 July 2026, and interest as assessable income of the lender | Read 15 Aug 2026 |
| ASIC business-structure guidance and business.gov.au trust guidance | The distinction between an individual, company and trust as the lender-side vehicle and why trustee powers, administration and professional advice matter before the first loan | Read 17 Aug 2026 |
| Australian Taxation Office financial-supply and SMSF investment guidance | Loans as input-taxed financial supplies for GST purposes; interest as income; and the prohibition on SMSF loans or financial assistance to members or relatives together with arm's-length and investment-strategy requirements for other fund lending | Rechecked 17 Aug 2026 |
| Moneysmart, What is private credit? | The distinction between direct lending and accessing private credit through pooled investment funds, and the reminder that an investor in a fund is exposed to the underlying lending without personally originating each loan | Read 17 Aug 2026 |
| ASIC, Check another business is trustworthy; PPSR organisation search; AFSA National Personal Insolvency Index | Borrower and director verification, company status and external-administration checks, prior personal-property security searches and personal insolvency history as separate due-diligence inputs | Read 17 Aug 2026 |
| Australian Business Register, ABN entitlement | When an entity is entitled to an ABN and the distinction between carrying on or starting an enterprise and merely using an ABN as though it were a lending permission | Read 17 Aug 2026 |
| Australian Taxation Office, Financial services - questions and answers, with ITAA 1997 s 25-35 | Loans, mortgage interest and establishment fees as input-taxed financial supplies for GST, and the conditions that can apply before a bad debt is deductible to a lender | Rechecked 17 Aug 2026 |
Statutory periods, thresholds and regulator guidance change. Two matters referred to on this page involve court proceedings, one concluded and one where the allegations have not been determined. Nothing here is a substitute for advice on your own arrangements.
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