How Private Non-Bank Loans Work in Australia

Private non-bank loans are a well-established part of the Australian finance market. They are commonly used by property investors, business owners, developers, and self-employed borrowers who need funding structures that fall outside traditional bank policies.

This article explains how private non-bank loans work in Australia, what lenders assess, common pitfalls to avoid, and how borrowers can position themselves for smoother approvals. This is an educational guide only and is not intended to promote specific loan products.

If you are new to this type of finance, start with our overview of private lending in Australia.

What Are Private and Non-Bank Lenders

Private and non-bank lenders are lenders that operate outside Australia’s major banks while still providing secured lending under established legal frameworks.

These lenders may include:

• non-bank financial institutions

• private credit funds

• wholesale lenders

• sophisticated private investors

Unlike banks, private lenders assess risk primarily through property security and exit strategy rather than strict income and expense modelling.

How Private Non-Bank Loans Work in Australia

To understand how private non-bank loans work in Australia, it is important to focus on how risk is assessed.

Private lenders generally evaluate loans using three core factors:

1. the quality of the property security

2. the loan to value ratio

3. the credibility of the exit strategy

If these elements are strong, a loan may be approved even when a bank declines the application.

Property Security Comes First

Most private non-bank loans are secured against real estate. This can include:

• residential property

• commercial or industrial property

• development sites

• mixed use assets

The property’s location, market demand, condition, and title structure are critical considerations. Strong property security reduces lender risk and improves approval outcomes.

Loan to Value Ratios Explained

Loan to value ratio, commonly referred to as LVR, measures the loan amount compared to the value of the property.

Lower LVRs reduce risk and generally result in more favourable loan terms. Higher risk scenarios may require reduced LVR thresholds.

You can read more about how lenders assess this in our guide to loan to value ratios in private lending.

The Importance of Exit Strategy

Every private non-bank loan must have a clear exit strategy. This is a non negotiable requirement.

Common exit strategies include:

• sale of the secured property

• refinance to a traditional lender

• completion and sale of a development

• improvement in business cash flow

Lenders assess not only whether an exit exists, but how realistic it is within the proposed loan term.

Understanding exit strategy requirements is central to understanding how private non-bank loans work in Australia.

How Assessment Differs From Bank Lending

Banks focus heavily on income verification, living expenses, credit scoring, and long term serviceability.

Private non-bank lenders place greater emphasis on:

• property value and liquidity

• equity position

• borrower experience

• exit certainty

This difference allows private lenders to fund scenarios that do not fit standard bank criteria without removing risk controls.

Common Uses of Private Non-Bank Loans

Private non-bank loans are widely used for strategic purposes rather than distress situations.

Common use cases include:

• short settlement property purchases

• bridging finance between transactions

• business funding secured by property

• development and construction projects

For example, borrowers may use bridging loans when purchasing a property before selling an existing asset.

First and Second Mortgage Structures

Private lending commonly includes both first and second mortgage loans.

A first mortgage loan is the primary secured loan registered against a property. These are often used where speed and flexibility are required. Learn more about first mortgage loans.

Second mortgages sit behind an existing first mortgage and allow borrowers to access additional equity without refinancing the senior lender. For more detail, see second mortgage loans.

Each structure carries different risk considerations and pricing.

Interest Rates and Costs

Private non-bank loans typically carry higher interest rates than traditional bank loans. This reflects:

• faster access to funds

• flexible assessment criteria

• short term risk exposure

Borrowers should assess total cost in the context of timing, opportunity cost, and exit outcomes rather than headline interest rate alone.

Regulatory Context in Australia

Private non-bank lending operates within Australia’s legal framework. Many loans are structured as business purpose facilities and may be exempt from consumer credit legislation where appropriate.

Borrowers are usually required to obtain independent legal advice to confirm understanding of the loan terms.

When Private Non-Bank Loans May Not Be Appropriate

Private non-bank loans may not be suitable where:

• there is no credible exit strategy

• the loan is intended for long term personal use

• the property cannot support the required LVR

In these cases, traditional bank finance or alternative funding options may be more appropriate.

Frequently Asked Questions About How Private Non-Bank Loans Work in Australia

How private non-bank loans work in Australia compared to banks?

Private lenders focus on property security and exit strategy rather than strict income serviceability models used by banks.

Are private non-bank loans legal in Australia?

Yes. They operate within Australian lending and property law frameworks.

Are private non-bank loans short term?

Most are designed as short term facilities and are not intended as permanent finance

solutions.

Who typically uses private non-bank loans?

Property investors, developers, business owners, and self employed borrowers commonly use this type of finance.