Non-Bank Loans in Australia Explained

Non-bank loans play a growing role in Australia’s finance system. They are commonly used by business owners, investors, and borrowers who need funding options that fall outside traditional bank criteria.

This article explains non-bank loans in Australia explained in simple terms. It covers how non-bank lending works, how it differs from bank finance, what lenders assess, and when this type of funding may or may not be appropriate.

This content is educational only and does not promote specific loan products.

If you are new to this topic, it may help to start with our overview of private lending in Australia.

What Are Non-Bank Loans in Australia?

Non-bank loans are provided by lenders that operate outside Australia’s major banking institutions. These lenders may include non-bank financial institutions, private credit funds, and wholesale lenders.

Unlike banks, non-bank lenders are not restricted by the same internal credit policies. This allows them to assess loans based on risk, structure, and security rather than relying solely on income and expense models.

Despite the name, non-bank loans still operate within Australia’s legal and regulatory framework.

How Non-Bank Loans Work?

To understand non-bank loans in Australia explained, it is important to understand how lenders assess risk.

Non-bank lenders typically focus on three core areas:

• the quality of the security

• the loan to value ratio

• the exit strategy

If these elements are sound, a loan may be approved even where a bank has declined the application.

Key Differences Between Banks and Non-Bank Lenders

Assessment Approach

Banks generally assess borrowers based on:

• income verification

• living expenses

• credit scoring

• long term serviceability

Non-bank lenders focus more on:

• asset value and marketability

• equity position

• loan structure

• exit certainty

This difference explains why non-bank loans are often used in time sensitive or complex scenarios.

Common Uses of Non-Bank Loans

Non-bank loans are used for a wide range of legitimate purposes, not only financial distress.

Common scenarios include:

• short settlement property purchases

• bridging finance between transactions

• refinancing where bank criteria no longer fit

• business funding secured by property

For example, borrowers may use bridging loans when funds are required before an existing asset is sold.

Property Security and Asset Backed Lending

Most non-bank loans are secured by property. This may include residential, commercial, or mixed use assets.

The strength of the property plays a significant role in the approval process. Lenders assess factors such as location, demand, title structure, and existing debt.

Asset backed lending allows non-bank lenders to be more flexible in how they assess borrower income.

Loan to Value Ratios Explained

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

Lower LVRs reduce lender risk and often lead to smoother approvals.

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

Understanding LVR is a key part of understanding non-bank loans in Australia explained.

Exit Strategy Requirements

An exit strategy explains how a loan will be repaid at the end of the loan term.

Common exit strategies include:

• sale of the secured property

• refinance to a bank lender

• completion and sale of a development

• improvement in business cash flow

Non-bank lenders assess whether the exit is realistic within the proposed timeframe.

Types of Non-Bank Loan Structures

Non-bank lending can involve different structures depending on risk and purpose.

First Mortgage Loans

A first mortgage loan is the primary secured loan on a property. These loans are often used in non-bank lending where speed or flexibility is required.

Learn more about first mortgage loans.

Second Mortgage Loans

Second mortgages allow borrowers to access equity behind an existing loan without refinancing the first mortgage.

More information is available in our guide to second mortgage loans.

Costs and Pricing Considerations

Non-bank loans typically have higher interest rates than traditional bank loans. This reflects:

• faster access to funds

• flexible assessment

• short term risk exposure

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

Regulatory Context in Australia

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 applicable.

Borrowers are usually required to obtain independent legal advice before settlement.

When Non-Bank Loans May Not Be Suitable

Non-bank loans may not be appropriate where:

• there is no credible exit strategy

• the loan is intended for long term personal use

• the property cannot support the required security

In these cases, traditional bank finance may be more suitable.

Frequently Asked Questions About Non-Bank Loans in Australia Explained

Are non-bank loans legal in Australia?

Yes. Non-bank lenders operate within Australian lending and property law.

Are non-bank loans short term?

Most non-bank loans are designed as short to medium term facilities.

Who typically uses non-bank loans?

Business owners, property investors, developers, and self employed borrowers commonly use non-bank loans.

How do non-bank loans differ from private lending?

Non-bank lending and private lending often overlap. Both focus on asset security and risk rather than traditional serviceability models.