Sometimes a bank simply can’t help in time, or at all. A settlement is days away, the ATO wants paying, or your situation doesn’t fit a standard credit policy. That’s where private lending comes in. It can be a useful tool for business owners and investors, but it costs more and needs a clear plan to get out of it.

What is private lending?

Private lending is finance from outside the banks and mainstream non-bank lenders. The money usually comes from private credit funds, investor groups or wealthy individuals. Loans are typically short term, often from a few months up to two or three years, and are usually secured by property, either residential or commercial.

Private lenders tend to focus on the value of the security and how you’ll repay the loan, rather than on tax returns and serviceability calculators. That’s what lets them decide quickly and take on situations banks won’t.

When private lending can make sense

• Time-critical deals. Some private loans can settle within days, where a bank may take weeks.
• Bridging a gap. Buying before you sell, or covering a short period until a bank loan, sale or payment comes through.
• Clearing urgent debts. Paying out an ATO debt or a creditor to stop recovery action, while a longer-term solution is arranged.
• Complex or recent history. Credit defaults, a recently started business or income that’s hard to document.
• Business opportunities. Buying stock, equipment or a business when the opportunity won’t wait.

What it costs

Private lending is more expensive than a bank loan. Rates are usually well above standard business and home loan rates, and they vary a lot depending on the security, the loan-to-value ratio and the risk. On top of the rate, expect some or all of the following:

• An establishment or lender fee, often a percentage of the loan
• Valuation and legal fees, often paid by the borrower
• Interest that’s prepaid or capitalised (added to the loan), which reduces the cash you receive or grows the debt
• Higher default interest and fees if you go past the term

Always compare the total cost over the time you expect to need the loan, not just the headline rate.

The exit strategy matters most

A private loan should be a bridge, not a destination. Before you borrow, you need a realistic way to repay it by the end of the term, such as selling a property, refinancing to a bank once your situation improves, or receiving a known payment. If the exit falls through, the costs can climb quickly. A good private lender will ask about your exit up front, and so will we.

Protections and what to check

Most private loans are made for business or investment purposes. Loans that are predominantly for business purposes generally fall outside the National Credit Code, which means fewer of the consumer protections that apply to personal home loans. You may be asked to sign a business purpose declaration. This is only valid if the loan really is for business. ASIC has taken action against lenders that relied on these declarations for loans that were actually for personal use.

Small businesses still have some protection. Unfair contract term laws can apply to standard form business loan contracts where the business has fewer than 100 employees or turnover under $10 million, subject to other conditions. Before you sign, check:

• The total of all fees, and how interest is charged
• What happens if you need an extension, and what it costs
• Early repayment fees or minimum interest periods
• The default rate and default fees
• That you’ve had independent legal advice on the loan documents

A typical scenario

Take a transport business owner who has the chance to buy a competitor’s trucks and contracts, but the seller wants to settle in two weeks. Their bank is interested but needs updated financials, which will take a couple of months. A private lender could provide a six-month loan secured against the owner’s investment property, with interest capitalised. Once the new financials are ready, the business refinances to a lower-cost loan and repays the private lender.
This is an illustrative example only. Every situation, lender and outcome is different.

Frequently asked questions

How fast can a private loan settle?

Sometimes within a few days, once the lender has a valuation and the legal documents are signed. More complex deals can take a couple of weeks.

Do private lenders check credit history?

Most do, but many are more flexible than banks about past defaults, provided the security is strong and the exit strategy is clear.

Can I use a private loan to buy my own home?

Private funding through us is for business and investment purposes. If you’re buying a home to live in, we can look at specialist and low-doc home loans instead. See Low-doc home loans explained.

How much can I borrow?

It depends mainly on the value and type of the security. Many private lenders lend up to around 65% to 75% of a property’s value, with lower limits for vacant land or specialised property.

Know your options before you commit

Private lending can open doors, but it should be the right tool for the job. We’ll look at whether a bank or non-bank option could work first, compare private lenders’ total costs, and help you map out a realistic exit.

General information only. This article doesn’t consider your objectives, financial situation or needs, and isn’t legal, tax or credit advice. Private funding is for business or investment purposes only. Private funding is arranged by Papara Pty Ltd t/a Stratium Finance (ABN 63 666 308 943), Corporate Credit Representative 571077 of COG Aggregation Pty Ltd, ACL 389527. All loans are subject to lender approval, terms, conditions, fees and charges.