Second tier lenders are smaller banks and non-banks. What tiers one to three mean, why regulators use the word differently, and who oversees whom.
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Second Tier Lenders · APRA Tiers · Non-Bank Lenders
Second tier lenders is a broker phrase for anything outside the largest banks, and APRA uses its own tiers with different meanings. This guide separates the two, shows which regulator and licence apply to each lender type, and sets out what to check before you borrow.
Quick Answer
Second tier lenders is broker shorthand for lenders outside the largest banks, usually smaller banks and non-bank lenders. APRA uses tiers too, but its tiers are sorted by asset size and only cover authorised deposit-taking institutions, so the word means something different to a regulator. The useful question is which licence and regulator apply to the lender you are considering, and the non-bank lender glossary entry explains the non-bank side.
Also called: tier 2 lenders, 2nd tier lenders. Both are broker shorthand, and neither matches the size groups APRA uses in its own framework.
What are second tier lenders in Australia?
Second tier lenders is a broker term for lenders that sit outside the largest banks. In everyday use it covers two groups: smaller banks, including building societies and credit unions, and non-bank lenders. The phrase describes where a lender sits in the market. It does not tell you what licence the lender holds, who regulates it or what protections apply to your loan.
That gap is why the term causes confusion. A borrower hears "second tier" and assumes one category with one set of rules. In practice a building society, a credit union and a non-bank lender answer to different regulators and carry different deposit and consumer protections, so one label covers very different businesses.
The label gets searched because of where it shows up in a self-employed borrower's journey. A major bank has declined the application, and the next question is where else it can go. The second tier is where many of those files end up, which is why the term keeps appearing in search. Still, what lenders actually look at first is the file in front of them, not the tier the lender sits in.
Brokers and borrowers also use the term loosely. The same words can mean a smaller licensed bank to one person and any non-bank to another. The sections below separate the two, so you can tell which meaning a conversation is using.
Who are tier 2 lenders in Australia?
Tier 2 is the same broker shorthand as second tier, and it covers the same kinds of lender. This post does not name individual lenders, because no official list exists and a list of names goes out of date quickly. The reliable way to confirm who a lender is comes from its licence, its regulator and whether it takes deposits, and you can check those against the registers APRA publishes.
In broker usage the lender types fall into four groups:
- Smaller banks. Authorised deposit-taking institutions in the smaller size groups of APRA's framework. They are supervised by APRA and covered by the Financial Claims Scheme.
- Building societies and credit unions. Deposit-taking institutions that the Financial Claims Scheme covers in the same way as banks, and that APRA oversees.
- Non-bank lenders that lend to consumers. Lenders that must hold an Australian credit licence and be members of AFCA.
- Commercial-only lenders. Lenders that only provide commercial loans. They are not required to hold a credit licence or join AFCA, although some join voluntarily.
The table below sets out how each type sits under the main regulatory settings. Read it as a map of who answers to whom, not as a ranking of lenders.
| Lender type | Authorised by APRA | Covered by the Financial Claims Scheme | Australian credit licence | AFCA membership |
|---|---|---|---|---|
| Major bank | Yes, as an authorised deposit-taking institution | Covered | Required where it lends to consumers | Required where it lends to consumers |
| Smaller bank, building society or credit union | Yes, as an authorised deposit-taking institution | Covered | Required where it lends to consumers | Required where it lends to consumers |
| Non-bank lender that also lends to consumers | Not an authorised deposit-taking institution. Registered with APRA only if it meets the thresholds, and not prudentially supervised | Not covered | Required | Required |
| Commercial-only lender | Not an authorised deposit-taking institution. Registered with APRA only if it meets the thresholds | Not covered | Not required | Not required, may join voluntarily |
Sources: APRA, types of banking institutions, and ASIC, INFO 207 on commercial loan disputes. Both read 3 November 2026. Neither page shows a publication date.
What are tier 3 lenders in Australia?
In broker speech, tier 3 usually means the smallest lenders in the market, the specialist funders that look at files the larger lenders decline. That is the meaning most borrowers meet on a comparison page, and it is the one this post uses when it talks about the broker side.
APRA's meaning runs the other way. Its framework for authorised deposit-taking institutions takes effect 1 July 2026 and sorts institutions by total assets. The top group is the Most Significant Financial Institutions, above $300 billion in total assets. The Significant Financial Institutions sit above $30 billion, a threshold raised from $20 billion, and the remaining institutions fall below that. The framework covers authorised deposit-taking institutions only, so it says nothing about the finance companies a broker might place a file with. Source: APRA, finalising the third tier banking framework, read 3 November 2026.
So the word tier points to the largest banks for a regulator and to the smallest lenders for a broker. Neither use is a licence or a product. Which one you meet depends on who is talking, so it is worth asking which meaning the speaker intends before you act on the label.
Is lender tier an official category?
No. Second tier and tier 3 are broker shorthand. The tiers APRA sets are sorted by asset size, apply only to authorised deposit-taking institutions, and say nothing about whether a lender is licensed to lend to a consumer or a business. A tier is a size band, not a licence class.
The Reserve Bank's overview of the financial system makes the same point from another direction. It groups authorised deposit-taking institutions and other institutions, and it does not use tiers at all. Source: RBA, main types of financial institutions, read 3 November 2026.
The category that matters for many non-bank lenders is the registered financial corporation. A registered financial corporation provides finance and must register with APRA if it meets thresholds, including assets above $50 million (see APRA's registered financial corporations page). APRA's role is registration, deregistration and data collection, not prudential supervision, and these companies cannot take deposits except by issuing or selling securities. Source: APRA, registered financial corporations, read 3 November 2026. Registration tells you the company is on APRA's books. It does not mean APRA supervises the lending.
This is the point where the broker label and the regulatory label part ways. A non-bank lender can be a registered financial corporation, a commercial-only finance company or a consumer lender with a credit licence, and each carries different obligations. The tier word tells you none of that.
Are second tier lenders safe to borrow from?
Safety depends on which regulator and licence apply to the lender, not on the tier word. Two questions do most of the work: is the lender supervised, and which protections attach to the money you are borrowing or depositing.
Deposits are the protection most people picture. The Financial Claims Scheme covers deposits at Australian banks, foreign subsidiary banks, building societies and credit unions, up to $250,000 per account holder per licensed ADI. It does not cover finance companies that APRA has not licensed. Source: APRA, types of banking institutions, read 3 November 2026. That protects depositors, not borrowers, so it tells you nothing about the terms of the loan you would sign.
The borrower side sits with ASIC's guidance. ASIC's guidance places commercial loans at the bottom of the borrower protection scale, which is why the licence and AFCA questions matter on a business loan. Source: ASIC INFO 207, read 3 November 2026.
Before you borrow, work through these checks in order. None of them requires a name list.
- Confirm the regulator. Check whether the lender is an authorised deposit-taking institution, a registered financial corporation or neither, using the APRA material linked above.
- Confirm the credit licence. If the loan could be treated as consumer credit, the lender needs an Australian credit licence. Commercial-only lenders are not required to hold one.
- Confirm AFCA membership where it applies. Consumer lenders must be members. Commercial-only lenders may join voluntarily, so a missing membership is a question to ask, not an automatic fail.
- Read the facility letter. The term, the review dates, the default terms and the security are in that document, and they matter more than the label on the lender.
Do second tier lenders suit self-employed borrowers?
Whether a second tier lender suits you depends on your file, not the tier. Lenders outside the largest banks place different weight on cash flow, security and the credit file, so a file that stalls with one lender may read differently with another. What lenders actually look at first is the business's cash flow, the security offered and the credit history, and the order shifts from file to file.
If you have been declined and want to know what comes next, the business loan declined guide sets out the steps, and the bad credit business loans page covers the adverse credit side. To see whether a file is worth taking to market, check eligibility. For the bank versus non-bank comparison, the non-bank versus bank read goes further.
Second tier lenders is a broker phrase for lenders outside the largest banks, usually smaller banks and non-bank lenders. APRA's tiers are sorted by asset size and cover only authorised deposit-taking institutions, so the same word means one thing to a regulator and another to a broker. What decides whether a lender is safe to use is its licence, its regulator and the terms in the facility letter.
Key takeaway: Ask which regulator and licence apply to a lender, not which tier it sits in.Frequently Asked Questions
Second tier lending is a broker term for loans from lenders outside the largest banks, which usually means smaller banks and non-bank lenders. The phrase has no legal meaning, so a lender's tier does not tell you its licence, its regulator or its protections. Check the regulator and licence of the specific lender, and use the non-bank lender glossary entry for the non-bank side.
No official list of second tier lenders in Australia exists, because the term is broker shorthand rather than a regulatory category. The authoritative check is APRA's public register, which shows who it authorises and registers, rather than a name list that can go out of date. This is why this post names no lenders.
Some lenders outside the largest banks do lend to borrowers with adverse credit, but the tier label does not decide it. Each lender sets its own policy, and the file is read against the credit event, the security and the cash flow. The bad credit commercial property loan guide sets out how each credit event is read.
Second tier lenders are regulated, but the rules depend on the type of lender rather than its tier. Smaller banks are authorised deposit-taking institutions under APRA, while non-bank lenders that lend to consumers must hold an Australian credit licence and be AFCA members. Commercial-only lenders are not required to hold a credit licence or join AFCA, though some do voluntarily.
A tier 2 lender is not always a non-bank lender, because the broker term covers smaller banks as well as non-bank lenders. A non-bank lender is a lender that is not an authorised deposit-taking institution, so check which one a lender is before you assume its licence, regulator or protections.
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