Private Lending in Australia: How It Works, Costs and Risks
Property Lending
Non-bank finance · Property security · Exit strategy
Private lending funds business deals that banks cannot write, at a price that reflects the speed and the risk. This guide explains who Australia's private lenders actually are, how their loans are secured and priced, which rules do and do not apply, and how to check a lender before you sign. It is written for self employed people and business owners.
Quick Answer
Private lending is business purpose finance from non-bank lenders, secured against property and assessed on security, equity and exit rather than tax return income. It trades a higher cost for speed and flexibility, and the exit plan carries the approval. The basics live in our private lending glossary entry, and this guide covers the rest.
What is private lending in Australia?
Private lending is credit provided outside the banking system, most often to a business borrower and secured against real property. The money comes from private capital, individuals, family offices, private credit funds and specialist non-bank lenders, rather than from bank deposits, and the loan is assessed on the security, the equity behind it and the repayment plan rather than on payslips and standard serviceability. That is the whole category in one sentence, and everything else in this guide is detail on how it works in practice.
The typical private loan in Australia is short to medium term, business purpose, and written against property the borrower already owns. It exists because bank credit policy is a checklist, and plenty of sound deals miss a box: income evidence in the wrong format, a timeline the bank cannot meet, a security type outside policy. Private lenders read those same files on different criteria, price for the risk, and move quickly. Our private lending page covers what we arrange, while this guide stays on how the market itself works.
Private lending is not a loophole and not a last resort. Used well, it is a deliberate tool: a purposeful facility with a defined way out, sitting between the problem a business has this month and the cheaper finance it can qualify for later.
Who are Australia's private lenders?
Three kinds of lender sit behind the label. First, individuals and family offices lending their own capital, often through a solicitor or a fund manager, on a small number of deals they can see and touch. Second, private credit funds and mortgage trusts, which pool investor money and run a credit committee, and which have grown into a meaningful slice of Australian business lending. Third, specialist non-bank lenders, wholesale funded businesses that look more like a small bank without the deposits or the prudential framework. The label on the website matters less than the funding behind it, because the funding sets the appetite, and our private mortgage lender entry unpacks the property-secured end of the spectrum.
The regulator is paying attention to the same growth. ASIC has an ongoing review of private credit markets in Australia, looking at transparency, valuation practices and governance across the sector. That is context rather than a rule change for borrowers, but it says something useful: this is now a large, established part of the market rather than a fringe. From 13 July 2026 the Consumer Data Right also extends to non-bank lenders, bringing more of the sector inside Australia's data sharing framework, a shift we cover in choosing a non-bank property lender under the CDR.
For a borrower, the practical difference between the three groups is speed, size and consistency. An individual lender can be the fastest and the most flexible on a deal they like, a fund is more consistent and can write bigger cheques, and a specialist non-bank sits closest to bank-style process. A broker's job is matching the deal to the desk, the same way we match business lending files to bank and non-bank credit teams.
How does a private loan work from enquiry to discharge?
A private loan runs from scenario to settlement in a short, defined sequence, and the file quality sets the pace at every step. Nothing in the process is exotic: it is the bank process with fewer gates, faster decisions and more weight on the security and the exit.
- Scenario and enquiry: the property, what is owing on it, the amount needed, the business purpose and the intended exit.
- Indicative terms: a term sheet or letter of offer setting out rate, fees, term and conditions, often within a day or two of a complete scenario.
- Valuation and title: the lender confirms what the security is worth and what is registered against it, sometimes on a desktop basis for smaller, well-covered deals.
- Legal documents and consents: loan and mortgage documents are prepared, and where the loan sits behind an existing lender, first mortgagee consent is sought.
- Settlement: funds advance, the mortgage or caveat goes on title, and the facility term starts running.
- Discharge: at exit the loan is repaid, the security is released from title, and the borrower moves to the next facility or to no facility at all.
How the funder behaves inside that sequence is its own subject, and our walkthrough of how private mortgage lenders operate in Australia covers the credit committee view. If you want to know where your own scenario lands before you commit to anything, you can check your eligibility and get an indicative read first.
How are private loans secured?
Four structures do almost all of the work in private lending, and they differ on priority, strength and speed. A registered first mortgage gives the lender first call on the property. A registered second mortgage ranks behind an existing first lender, which is why it needs the first lender's cooperation. A caveat is faster again but weaker: it does not itself create a security interest in the property, it is a notice on title that protects the interest the lender claims under the loan agreement and blocks dealings while it is there. A general security agreement, registered on the Personal Property Securities Register, covers business assets rather than land and usually sits alongside the property security with director guarantees.
| Factor | Registered first mortgage | Registered second mortgage | Caveat | General security agreement (GSA) |
|---|---|---|---|---|
| What it is | A mortgage registered on title with no lender ahead of it | A mortgage registered behind an existing first mortgage | A notice on title protecting a claimed interest | A charge over business assets, registered on the PPSR |
| Creates a registered property interest | ✓ Yes | ✓ Yes, second in line | ✗ No, notice only | Partial: personal property, not land |
| Where it ranks on default | First paid from the property | Paid after the first lender | Depends on the underlying interest claimed | Over business assets, in PPSR priority order |
| Typical use in private lending | Larger facilities where the bank is refinanced out or absent | Equity release behind a bank loan the borrower keeps | Small, urgent, short-term advances | Support security alongside a mortgage or caveat |
| Consent required | None beyond the borrower | First mortgagee consent in most cases | Often lodged without consent, though first loan terms may restrict it | None from other lenders, PPSR registration only |
| Speed to put in place | Days to weeks | Days to weeks, consent is the critical path | Hours to days | Days, alongside the main security |
| How it is released at exit | Discharge of mortgage at repayment | Discharge of mortgage at repayment | Withdrawal of caveat at repayment | PPSR discharge at repayment |
Priority is the word that matters most in this section: it decides who is paid first if the property is ever sold, and it is set by what is registered and in what order. Where a private facility is going in behind a bank loan you intend to keep, first mortgagee consent is usually the gating step, and our piece on stacking a private mortgage behind a bank senior walks the whole arrangement. The caveat and second mortgage structures each have a full guide of their own: see caveat loans, the caveat loans guide and second mortgage loans, so this guide keeps to how they fit the private lending picture. The glossary covers security and the PPSR check if the terms are new.
What does private lending cost?
The rate is not the cost. Private lending is priced as a stack, and comparing two offers on the headline rate alone is the most common mistake borrowers make in this market. The components are consistent across lenders even though the numbers move deal by deal, and short-term facilities are often quoted per month rather than per year, which needs translating before any comparison means anything.
| Cost component | What it covers | What drives it |
|---|---|---|
| Interest rate | The price of the money for the term | Security position, loan to value ratio, exit strength and lender funding cost |
| Establishment fee | The lender's fee for setting up the facility | Deal size and complexity, commonly a percentage of the facility |
| Legal fees | The lender's lawyers documenting the loan and security | Structure complexity, number of securities and consents |
| Valuation | Evidence of what the security is worth | Property type and location, and which valuation tier the lender accepts |
| Consent processing | Obtaining first mortgagee consent on second-position deals | The first lender's process and responsiveness |
| Capitalised interest | Interest added to the balance instead of paid monthly | A structure choice, not a fee: it protects cash flow but grows the payout figure |
| Extension fees | The price of more time if the exit runs late | Lender policy and how early the extension is raised |
| Default interest | A higher rate applying after a breach or missed payment | Loan terms, so read them before signing, not after |
From our broking files, indicative
Indicative only, drawn from Switchboard broking files across the first half of 2026. Every deal prices on security, LVR and exit; treat these as orientation, not an offer.
- First registered mortgage, business purpose: commonly priced in the high single digits to low teens per annum, indicative.
- Second registered mortgage: commonly mid-teens to low twenties per annum, indicative.
- Caveat-secured short term: commonly quoted per month rather than per annum, roughly 1 to 2 percent per month, indicative.
- Establishment costs: commonly around 1.5 to 3 percent plus legal and valuation at cost, indicative.
- Timing: complete files commonly settle in days to a couple of weeks, not months, indicative.
- What gets files declined, no figures needed: no credible exit, equity that cannot be verified on title, a second position without first-mortgagee consent, unclear business purpose.
These are indicative ranges as at July 2026, not quotes. Pricing varies with security position, LVR, exit and lender appetite. Business-purpose lending only.
Where this commonly lands is a total-cost comparison over the expected term: rate translated to the same basis, establishment and legals added, and capitalised interest projected to the payout date. The valuation line deserves attention too, because some lenders will accept a cheaper, faster valuation tier on well-covered deals, a trade explored in our piece on no-valuation caveat loans.
Is private lending regulated in Australia?
Unregulated does not mean lawless. Business-purpose private lending generally sits outside the National Credit Code, but it sits squarely inside contract law, the land title system and the conduct rules of the ASIC Act. What a borrower gives up compared with a consumer home loan is the consumer protection layer: responsible lending obligations, licensing of the lender and guaranteed access to external dispute resolution. Knowing exactly which protections remain is more useful than the label, and the figures below carry the load.
The primary sources are short and readable: ASIC INFO 101 on when the credit legislation applies, and ASIC INFO 207 on disputes about commercial loans. The practical takeaway for anyone weighing business-purpose credit of this kind: the business purpose declaration is not a formality, sign it only if it is true, because it changes which rules protect you.
Private lending vs a bank business loan: when does it make sense?
The trade is speed and certainty against price. A bank is an authorised deposit-taking institution supervised by APRA, funds itself cheaply, and passes that cheapness on with slow, standardised credit. A private lender funds itself at market rates and sells the opposite product: fast, structured, fit-led credit at a materially higher price. The banks' own conduct promises, like the Banking Code of Practice, bind the banks that subscribe to it, not private lenders, which is one more reason the two products should be compared deliberately rather than by rate alone.
The backdrop is a busy market on both sides: business credit grew 9.9 percent over the year to May 2026 (RBA Financial Aggregates, seasonally adjusted, released 30 June 2026). That figure is a credit growth rate for lending to non-financial businesses by domestic financial institutions, not a finance cost, not SME specific, and it excludes non-intermediated lending, but it shows demand for business funding is broad while bank credit policy stays narrow, which is exactly the gap private lending fills.
Where private lending fits
- A sound, property-backed deal the bank cannot underwrite in time
- A defined, dated exit: refinance, sale or a contracted cash event
- Equity that is real and verifiable on title
- A borrower who treats it as a short, purposeful facility
Where it stalls
- No credible exit, just hope that trading improves
- A deal a bank would do inside the same timeframe, at a fraction of the cost
- Equity claimed on an optimistic owner estimate of value
- Borrowing that papers over a structural loss
The decision test is blunt: if a standard business loan can be approved inside your real deadline, take it, and if the funding need is a construction or project shape, development finance is its own lane with its own funders. Where the bank has already said no, the useful question is why, because policy declines and credit declines lead to different answers, a distinction unpacked in private lending when the bank declines your deal.
What do you need to qualify for a private loan?
You need five things: property with real equity, clean title, a genuine business purpose, a small set of documents, and a dated exit. Income evidence matters far less than at a bank, but the file still has to prove the things the lender actually relies on, and a file that arrives complete is the single biggest speed lever a borrower controls.
- ✓ Equity: a current rates notice or valuation evidence, and the balances owing on every registered loan.
- ✓ Title: a title search showing exactly what is registered, with no surprises for the lender to find later.
- ✓ Entity and purpose: an active ABN, the borrowing structure, and a business purpose you can state in one sentence and declare truthfully.
- ✓ Guarantees: directors usually guarantee company borrowing, so know what that means before you sign, starting with the guarantor entry.
- ✓ Exit: a dated, documented exit strategy, because the exit is assessed before almost anything else.
From the underwriter's seat, the order of reading is security, then exit, then everything else, which is roughly the reverse of a bank's order. The government's business.gov.au finance guidance is a sensible general primer on what lenders ask of a business, and the structural choice between going to a private lender directly and adding a second mortgage behind your bank is its own decision, mapped in when going direct to a private lender beats a second mortgage.
How do you check a private lender before you sign?
Are private lenders safe? They are as safe as the checking you do before you sign, because the sector spans careful, well-run funds and operators you should walk away from, and the law leaves more of that checking to you than it does on a consumer loan. A short verification routine covers most of the risk, and none of it needs a lawyer to start.
- Search the lender and its directors on ASIC's registers, and check whether the lender holds a credit licence. Commercial-only lenders are not required to hold one, so absence is not damning, but you should know either way. ASIC's guidance on disputes about commercial loans explains what that difference means for you.
- Check whether the lender is an AFCA member, because membership decides whether external dispute resolution exists if things go wrong. AFCA's small business pages cover who can complain and about what.
- Verify the entity: ABN lookup, company search, and a registered office that is a real place. A lender that is hard to identify is answering your question already.
- Treat large upfront fees as the classic warning sign. Paying reasonable valuation and legal costs as a deal progresses is normal; paying thousands up front to unlock funding that never arrives is the standard loan scam shape, and Moneysmart's loans guidance is a good consumer-side reference for the red flags.
- Have your own solicitor read the loan and security documents before you sign, with default interest, fees and the events of default read first, not last.
A broker takes on part of this filtering by only placing deals with funders they know settle cleanly, which is a large part of what you are paying for. If you would rather talk a specific lender or offer through with someone first, get in touch before you sign anything.
What is your exit, and what happens if it slips?
A borrower we will call the case study took a twelve month private facility with a sale as the exit, and the sale ran late. What saved the position was not luck: the term had buffer built in, a refinance fallback had been mapped before settlement, and the borrower raised the delay with the lender months early rather than weeks late. The facility was extended on known terms and the exit completed. The same slip, met with silence and no fallback, ends very differently, and that difference is the whole discipline of this section. Illustrative only, and deliberately without figures.
The exit is the plan the loan was approved against: most commonly a refinance to a bank or non-bank term lender once the original problem is fixed, a property sale, or a defined cash event in the business. Private lenders underwrite the exit before almost anything else, which is why the strongest files name the takeout, date it and document it, the pattern set out in the exit plan private lenders want and scored dimension by dimension in our exit strategy scorecard.
If your exit slips, the sequence that protects you is: tell the lender early, bring evidence of the delayed event, ask about an extension while you are still ahead of the term, and activate the fallback in parallel rather than waiting to need it. A slipped exit on a facility with no fallback narrows quickly to the outcomes nobody wants, because the lender's rights over the security are real and enforceable. Where the original facility was a fast caveat loan, converting to a longer, cheaper structure is often the sensible move rather than extending short money again. Plan the way out before you take the money, and the rest of this market works the way it is supposed to.
Private lending in Australia is business purpose, property-secured finance from non-bank capital, assessed on security, equity and exit rather than income, and priced above bank credit for the speed and flexibility it buys. It is lawful and established, but most of it sits outside the consumer protection layer, so the borrower carries more of the checking: who the lender is, what the documents say, and whether the exit is real. The deals that work share one shape: a genuine business purpose, verifiable equity, an honest cost comparison over the full term, and a dated exit with a fallback.
Key takeaway: private lending is a tool for a defined job, priced for speed and risk, and the exit plan is the part that decides whether it was the right tool.Frequently Asked Questions
Yes. Private lending is a lawful and established part of the Australian credit market. Business-purpose loans sit outside the National Credit Code but inside the general law: contracts are enforceable, mortgages and caveats are registered through the ordinary land title system, and conduct rules under the ASIC Act still apply to the lender. What changes compared with a consumer home loan is the level of borrower protection, not the legality. The private lending entry has the short version.
Partly, and it depends on what they lend for. A lender providing consumer credit must hold an Australian credit licence and follow the National Credit Act. A lender that only provides commercial loans is not required to hold a credit licence and is not required to be an AFCA member, on ASIC's own guidance. All lenders remain subject to the ASIC Act's prohibitions on unconscionable and misleading or deceptive conduct, and unfair contract term rules for standard form small business contracts. General regulatory position, not legal advice; the regulation section above links the ASIC sources, and security covers what the lender actually holds.
More than a bank, priced on security position, loan to value ratio and exit rather than a standard rate card. The full cost is a stack: interest, establishment, legal and valuation costs, and sometimes extension or consent fees, with short-term facilities often quoted per month rather than per year. Indicative ranges from our own broking sit in the cost section of this guide, alongside how capitalised interest changes the payout figure. Indicative only, not a quote.
Complete files commonly settle in days to a couple of weeks rather than months, indicative and varying by lender, security and documents. The usual gating items are title and valuation evidence, first mortgagee consent where the loan sits in second position, and how quickly the borrower's side returns signed documents. The fastest structure is usually a caveat, and the trade-off for that speed is a weaker security position.
Most commonly a registered first or second mortgage over real property. Caveats are used on faster, shorter facilities, and a general security agreement over business assets, registered on the PPSR, often sits alongside the property security together with director guarantees. The security structure drives the pricing and the speed, and the comparison table in the security section above puts the four structures side by side, with the underlying terms in the security entry.
A caveat loan is one type of private loan, not a separate market. The caveat version relies on lodging a caveat on title, which is a notice protecting the lender's claimed interest rather than a registered mortgage, so it is faster to put in place but legally weaker and usually smaller and shorter. A private loan secured by a registered mortgage takes a little longer and carries stronger rights. Our caveat loans guide covers the caveat side in full.
A second mortgage describes the security position, ranking behind an existing first mortgage, while private lending describes who funds the loan. Many private loans are written as second mortgages, but a private lender can also hold first position or rely on a caveat. If your question is really about adding a facility behind a bank loan you want to keep, second mortgage loans is the closer read.
Sometimes, because private lenders assess a different set of things. A bank decline is often about policy fit, income evidence or timing rather than the security itself, and a private lender reads the same file on equity, title and exit. Whether a private loan is available, and whether it is wise, depends entirely on those facts, and a facility without a credible exit is usually the wrong answer regardless of who will fund it. The distinction between policy declines and credit declines is unpacked in private lending after a bank decline. General information only.
Generally, deductibility follows what the borrowed money is used for, not who lends it or what secures it. The ATO position is that interest is deductible where the funds are used for an income-producing purpose, and mixed use is apportioned; the ATO guidance on interest deductions sets out the test. A private loan used genuinely in a business can therefore carry deductible interest, but this is general information, not tax advice, so speak to your accountant about your own position.
Through the repayment event the loan was underwritten against: most commonly a refinance to a bank or non-bank term lender, a property sale, or a defined cash event in the business. Private lenders assess the exit before almost anything else, and the strongest files carry a dated, documented exit strategy with a fallback. Exits, extensions and what happens when an exit slips are covered in the final section of this guide.
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