Private Lending in Australia: Who Uses It, Why, and When It Makes Sense
Private lending (often described as private credit or non-bank private finance) refers to loans funded by private investors or specialist private lenders rather than traditional banks. In Australia, these facilities are commonly written as business-purpose loans and are generally available to entities operating under an ABN (for example, companies, trusts or sole traders), rather than individuals borrowing for personal or household purposes. Private lending is commonly used for time-sensitive, asset-backed lending where speed and flexibility matter as much as price and is typically structured around a clear ‘exit strategy’ (for example, refinance, sale, or expected cash inflow).
What private lending looks like in practice
Private lending can be structured in several ways, including:
- Caveat loans: short-term funding secured by lodging a caveat on the property title (commonly used when fast settlement is required).
- Second mortgages (and other subordinate security): funding secured behind a first mortgage, used where borrowers need access to equity without refinancing immediately.
- Private development / construction funding: funding for projects where traditional lenders may be slower, more conservative, or less flexible on documentation and project profile.
- Private lending for debt consolidation (select cases): used to restructure or stabilise cash flow, typically where there is adequate equity and a realistic refinance plan.
While terminology varies across lenders, the common thread is asset-backed funding with customised conditions and typically shorter terms than mainstream mortgages.
Who uses private lending?
Private lending tends to appeal to borrowers who are commercially viable but don’t fit standard bank criteria right now, or who need a lender that can move quickly. Common borrower profiles include:
1) Property developers and builders
Developers may use private lending to act quickly on opportunities, bridge timing gaps or progress a project when bank timeframes and conditions are too restrictive. Pricing typically reflects the higher risk and faster turnaround.
2) Business owners needing fast, short-term capital
Businesses often face timing issues such as tax bills, supplier payments, urgent working capital needs or refinance pressure. Where mainstream credit processes are too slow or document-heavy, private funding may be structured quickly against property equity and a defined plan to repay.
3) Borrowers with non-standard documentation or complex circumstances
Borrowers may be temporarily outside bank policy due to credit impairment, irregular income, complex structures, or insufficient documentation in the timeframe required. Private lenders may take a more flexible view, typically at a higher cost.
4) People bridging between transactions or events
Private lending may be used to bridge a short period—such as awaiting a property sale, a business event, or a refinance approval—where the borrower can demonstrate a credible exit path.
Why borrowers choose private lending
Private lending is rarely chosen because it is the cheapest option. It is typically chosen because it can solve a timing or eligibility issue that mainstream lenders cannot address quickly.
Key advantages
Speed of approval and settlement: Private lending is frequently used when funds are needed urgently and bank timelines do not fit.
Flexibility in assessment and terms: Private lenders may be more flexible than banks, taking a view on circumstances and repayment capacity where a bank may decline due to policy constraints.
Asset-based focus and tailored structures: Many private lenders place significant emphasis on the security (often property) and the exit strategy, rather than a purely income-based approach.
Capitalised interest to preserve cash flow: In some private lending structures, interest can be capitalised (sometimes referred to as ‘rolled up’), meaning it is added to the loan balance and paid at the end of the term rather than requiring regular repayments. This can be useful where the loan is genuinely short-term and the priority is preserving cash flow while a defined exit strategy is executed (for example, a refinance, sale, or expected settlement). The trade-off is that the total interest cost is higher than paying interest monthly, and the exit strategy becomes even more important because the balance increases over time.
The trade-offs and risks to understand
The features that make private lending useful—speed and flexibility—usually come with meaningful trade-offs.
Higher cost of funds
Private lending typically carries higher interest rates and fees than mainstream lending, reflecting risk, short terms, and speed.
Exit strategy risk
Many private loans are designed to be temporary. If the refinance or sale does not occur as expected, borrowers can face extension fees, default interest, or enforcement action. The strength of the exit plan is central to whether private lending is appropriate.
Security and enforcement
Because these loans are commonly secured by property (via caveat or mortgage structures), default can place the secured asset at risk. This is why realistic timeframes and conservative assumptions matter.
Documentation and legal complexity
Private lending commonly involves tighter legal documentation and clearly defined events of default—particularly for development or business-purpose lending. Independent legal advice may be appropriate depending on the structure.
Where private lending can be a good fit
Private lending is often most suitable when it is short-term, clearly defined, and supported by strong equity and a realistic repayment pathway—for example:
- Bridging a settlement gap
- Funding a time-critical project step (with a refinance planned)
- Restructuring debt for short-term stabilisation, with a clear plan to transition to lower-cost finance
When it may be the wrong tool
Private lending is generally less suitable when:
- There is no credible exit strategy
- The plan relies on optimistic assumptions (sale prices, approvals, or timeframes)
- It is being used as a long-term substitute for mainstream finance without a pathway to transition
Why work with a trusted adviser
Because private lending can be fast-moving and heavily structured around security, fees and exit strategy, it is important to have experienced guidance before proceeding. A trusted adviser can help you clarify the purpose of the funding, test whether the exit strategy is realistic, compare available structures (including whether a mainstream option is viable) and ensure the total cost and risks are fully understood.
PPM Finance can assist by assessing the full context of your situation, explaining the practical differences between lender options and helping you select a structure that aligns with your timeframe and objectives.
Summary
Private lending plays a practical role in Australia’s finance ecosystem by filling gaps where banks may be too slow, too policy-bound or unable to accommodate a borrower’s timing or circumstances. It can be effective when used as a short-term solution with clear security, clear purpose and a credible exit plan and it can be risky when used without those fundamentals.