Can You Get a Business Loan With a Default in Australia?

Most Australian business owners find out they have a default the same way. A supplier, a telco, or the ATO lodged something during a rough patch, the debt was later paid, and it now sits on the credit file for five years. The bank sees the default, says no, and the business owner assumes the door is closed. It is not.

Yes, you can get a bad credit business loan in Australia with a default on your credit file. The pathway is a private or non-bank lender, not a major bank. Loans are assessed on property security, LVR and exit strategy rather than credit score, at indicative rates starting from around 8.5 per cent per annum on a first mortgage and 1 per cent per month on a second mortgage, subject to lender assessment.

• A default stays on an Australian credit file with Equifax, illion or Experian for five years, whether it is paid or unpaid.

• Major banks rarely approve business loans where the borrower has defaults on file, even paid ones.

• Private and non-bank lenders can lend against Australian residential, commercial or industrial property at indicative rates from around 8.5 per cent per annum on a first mortgage and 1 per cent per month on a second mortgage.

• Approval depends on security, LVR, exit strategy and loan purpose, not credit score alone, and is subject to lender assessment. This is not financial advice.

What a default actually means on an Australian credit file

A default is a formal listing made by a credit provider when a debt over $150 is more than 60 days overdue and the borrower has been given written notice. It is reported to the credit bureaus, Equifax, illion and Experian, and stays on the file for five years from the date it is listed under the Privacy Act, whether or not you later pay it.

Defaults commonly come from telcos, utility providers, banks, tax debts referred to external collection, trade suppliers, and previous business loans. A single default at $200 is very different to $30,000 across several accounts. Lenders read the whole file, not the score.

Serious credit infringements, judgments, and clearouts stay for seven years. Bankruptcy and Part IX debt agreements appear on the NPII register and remain for two years after discharge or five years from the start date, whichever is longer.

The most common reasons Australian SME owners end up with defaults

Most defaults on a business owner's credit file are not signs of bad character. They are the residue of a hard patch that has since been resolved. Understanding the cause helps a private lender assess the file properly.

• ATO tax debts that were later paid or restructured into a payment plan.

• COVID-era supplier or landlord disputes that ended up in collections.

• Telco or utility accounts left open when the business changed premises or names.

• Small trade credit disputes that were paid but never recorded as paid on the file.

• Credit card or vehicle finance arrears from a prior business that has since closed.

A clear one-line explanation of what caused each default is one of the most useful things a borrower can put in front of a private lender.

Paid vs unpaid defaults, and why lenders treat them differently

A paid default is a default the borrower has since settled. It still appears on the credit file with the notation Paid, but lenders view it as evidence the borrower has tidied up the situation. Most private lenders can work around paid defaults, especially where the amount is small and there is a reasonable explanation.

An unpaid default is a live problem. It signals to the lender that the borrower still has an unresolved dispute or outstanding balance. Most bank and non-bank lenders will require the default to be paid at, or before, settlement of the new loan. Some private lenders will fund a facility that clears the default at settlement out of the loan proceeds, particularly against property security.

Age matters as well. A three-year-old paid default from a telco is much easier to place than a six-month-old unpaid default from a bank.

Can you get a business loan with a default in Australia?

Yes, in most cases, provided the loan is genuinely for business or investment purposes and there is a clear structure that works for both borrower and lender.

Business-purpose lending falls outside the National Consumer Credit Protection Act, so private and non-bank lenders assess the deal on the security, the loan purpose, and the exit strategy rather than a strict serviceability calculator. Australian banks, by contrast, use automated credit decisioning that reads defaults as a hard fail on most business loan applications, with limited room for narrative.

A property-backed private business loan may settle in 24 to 72 hours or within a few business days from a complete application, compared to 4 to 8 weeks with a bank. The trade-off is higher pricing and shorter terms, which is why the exit strategy matters so much.

The pathway typically depends on three things. Whether you have property equity to offer as security. Whether the default is paid or unpaid. Whether you have a clear exit strategy, such as a refinance to a mainstream lender once the credit file is cleaner, sale of an asset, or contracted receivables.

Realistic scenario

A NSW earthworks contractor has one paid ATO default of $18,000 from two years ago, cleared through a payment plan. His home in a Sydney metro suburb is valued at $1.35 million with a $520,000 first mortgage to a major bank. He needs $250,000 quickly to buy a used excavator and secure a large civil contract that starts in three weeks.

A private lender arranges a second mortgage business loan of $250,000 behind the bank first mortgage. Combined debt is $770,000 against a $1.35 million valuation, or about 57 per cent combined LVR. The indicative rate is 1.25 per cent per month, capitalised over a 12 month term, with a 2 per cent establishment fee. Indicative approval is issued within 24 hours and the loan settles within five business days. The exit strategy is refinance to a mainstream lender in 12 months once trading history on the new contract is established.

Numbers are indicative. Actual rates, LVR and terms are subject to valuation, security offered, loan purpose and lender assessment.

Types of business loans available where defaults are on file

• Secured business loans against a residential, commercial or industrial property, structured as a first or second mortgage.

• Second mortgage business loans where the borrower keeps the existing bank first mortgage in place and adds a private facility behind it.

• First mortgage private business loans where the borrower refinances the existing property loan into a private facility that also funds business needs.

• Short-term business loans for urgent working capital or opportunity-driven funding.

• Low-doc and no-doc business loans where full financials are not available, subject to stronger security and a clear exit.

Property-backed structures are by far the most common route where defaults are present. The security gives the lender comfort that the exit works even if trading is slower than expected.

What private lenders assess

A private lender will typically want to see the credit file with the defaults clearly listed, evidence of whether each default is paid or unpaid, a plain explanation of what caused them, the loan purpose in writing, the security offered including a recent valuation or contract of sale, the current business trading position, and a realistic exit strategy.

The lender is trying to answer two questions. Does the loan make sense as a business decision, and does the exit work if the plan slips by three to six months.

Security typically required

For a borrower with defaults, private lenders usually require registered mortgage security over Australian property. Some specialist lenders will consider director property held in a related entity, subject to solicitor's advice on the corporate structure and independent legal advice for any guarantor.

Indicative maximum LVRs through Innovate Funding are up to 75 per cent on residential property, up to 70 per cent on commercial property, up to 60 per cent on industrial property, and typically 40 to 60 per cent on vacant land, subject to security quality and lender assessment.

Indicative rates, terms and settlement timeframes

Indicative pricing for property-backed private business loans in Australia in 2026, including scenarios with defaults on file, is:

• First mortgage private business loan: from approximately 8.75 per cent per annum, 1 to 24 months, up to 75 per cent LVR on residential security.

• Second mortgage business loan: from approximately 1 per cent per month, 1 to 24 months, sitting behind an existing first mortgage.

• Establishment fees typically 1 to 3 per cent depending on loan size, structure and complexity.

Indicative approval is often available within 24 hours of a complete application. Settlement typically takes 24 to 72 hours on straightforward second mortgage scenarios and 3 to 7 business days on more complex files, depending on valuation, solicitor timing and any priority arrangements with existing mortgagees.

Pricing is indicative only. Actual rates, fees, LVR and terms are subject to valuation, security, loan purpose, credit file and lender assessment.

Documents you will typically need to provide

• Photo ID and proof of address for each borrower and guarantor.

• A recent credit file with defaults, paid or unpaid, clearly identified.

• Rates notice and a recent mortgage statement for the security property.

• A short written summary of the loan purpose and exit strategy.

• Recent bank statements or BAS to show current trading position, where available.

• Company, trust or partnership documents for the borrowing entity.

No-doc and low-doc scenarios may not require full financials, especially where the security and exit are strong.

Exit strategy

Every business loan against property with a default on file needs a clear exit. The three most common are refinance to a mainstream lender once the credit file has aged and trading has recovered, sale of the security property or another asset where the borrower is downsizing or exiting, and contracted receivables such as a settled property sale, an insurance payout, or a large contracted receivable that pays out the loan at a known date.

Without a workable exit, most private lenders will decline the deal even where the security is strong. It is not financial advice, and borrowers should seek independent legal, financial and tax advice before signing.

Common reasons applications with defaults are declined

• Multiple unpaid defaults with no proposed settlement at loan close.

• No property security, or LVR that stretches beyond the lender's appetite for the file.

• No plausible exit strategy within the loan term.

• Loan purpose that is not clearly business or investment.

• Very recent bankruptcy or Part IX debt agreement that is still active.

Most of these can be reshaped with the right structure or timing. A good private lending brokerage will tell you upfront if the file needs a few months of aging before it will fund.

How Innovate Funding helps

Innovate Funding is a Sydney-based private lending brokerage established in 2020. We arrange property-secured business loans from $50,000 to $20 million through an in-house network of private capital providers, non-bank lenders and high-net-worth investors across Australia. Indicative approvals are often issued within 24 hours, with settlements typically in 24 to 72 hours on urgent second mortgage scenarios.

We benchmark lender appetite for files with paid and unpaid defaults, structure the facility around a workable exit, and negotiate pricing so the deal makes commercial sense. If your file has defaults and your business needs funding, we can tell you what is actually possible with the security and story you have.

FAQs relating to loans when there is a Default

Can I get a business loan with an unpaid default in Australia?

Yes, in some cases. Most private lenders will require the unpaid default to be settled at or before settlement of the new loan, often from the loan proceeds where there is property security. The default type, size and age all matter.

Do banks lend to businesses with defaults on file?

Rarely. The major Australian banks use automated credit decisioning that treats defaults as a hard fail for most business loan applications. Some specialist lending arms may consider small, aged, paid defaults case by case.

How long does a default stay on my Australian credit file?

A payment default stays for five years from the date it is listed, whether paid or unpaid. Serious credit infringements and court judgments can stay for seven years. Bankruptcy and Part IX debt agreements appear separately and have their own timeframes.

What rates apply to a business loan with defaults?

Property-backed private business loans through Innovate Funding start from around 8.75 per cent per annum on a first mortgage and 1 per cent per month on a second mortgage, subject to security, LVR, loan purpose and lender assessment. Rates are indicative and current as at 2026.

Can I get a business loan with a default and no property?

It is harder without property security. Some specialist unsecured business lenders will consider small facilities where the default is paid, aged and small, but pricing is higher and loan size is limited.

Will a business loan hurt my personal credit file?

Business-purpose loans are generally not reported to consumer credit bureaus in the same way as personal loans, but a personal guarantee may be reported if enforced. Ask the lender specifically how the facility is reported before signing.

Key takeaways

• Defaults on a credit file do not automatically shut you out of business finance in Australia.

• Banks are rarely the right lender when defaults are present; private and non-bank lenders are.

• Paid defaults are much easier to place than unpaid defaults, and age helps.

• Property security is the most common way to get a deal across the line, with maximum LVRs of about 75 per cent on residential, 70 per cent on commercial and 60 per cent on industrial.

• Indicative rates start from around 8.75 per cent per annum on a first mortgage and 1 per cent per month on a second mortgage.

• Indicative approvals are often available within 24 hours, with settlements from 24 to 72 hours on straightforward files.

• Every deal needs a clear exit strategy, usually a refinance, sale or contracted receivable.

Ready to see what is possible with the security and story you have? Talk to the Innovate Funding team or call 02 8919 3639 for a confidential discussion of your file.