What’s the Difference Between a Non-Bank Lender and a Private Lender?

In 2024, over 30% of commercial loans in Australia were sourced outside the Big Four banks. This marks a significant shift in how businesses access capital. Traditional banks are often associated with red tape, rigid lending policies, and slow response times.

Non-bank lenders and private lenders have emerged as agile and responsive alternatives. They are more open to deals that banks may not consider. While both alternatives operate outside the traditional banking system, they are distinct in their operations.

If you’re a business owner, property developer, or commercial finance broker, understanding these differences could shape your funding strategy. It may also affect the cost of finance and determine the success of a deal.

This guide breaks everything down so you can make informed borrowing decisions in today’s evolving financial landscape.

What Is a Non-Bank Lender?

A non-bank lender is a financial institution that offers loans without holding a banking license. Unlike banks, these lenders do not accept customer deposits, so they are not classified as authorized deposit-taking institutions (ADIs). Many non-bank lenders operate under similar regulatory oversight, especially in consumer credit.

They typically fund loans through wholesale markets, securitisation, or capital from institutional investors. In Australia, this sector has grown significantly. It offers a range of products from residential mortgages to commercial and development finance. Some notable names include Liberty, Pepper Money, and Thinktank.

Non-bank lenders exist between traditional banks and private lenders. They provide more flexibility than banks but are more structured and regulated than private lenders. This makes them popular for borrowers who may not meet traditional bank criteria, yet have verifiable income and credit history.

What Is a Private Lender?

A private lender is usually an individual, a small group of investors, or a company that lends money directly to borrowers. This lending is often secured by real estate. Private lenders do not follow the same regulatory framework as banks and non-bank lenders. This allows them to evaluate deals based on asset value instead of a borrower’s income or credit score.

Private lending is often referred to as asset-based or security-based lending. The focus is primarily on the property or asset being used as collateral. If a deal seems viable, private lenders can act quickly, sometimes settling transactions in just 24 to 72 hours—depending on external factors like legal reviews. This makes private lending suitable for urgent situations, unique deals, or borrowers with complex financial backgrounds.

Typically, these lenders work through brokers or boutique advisory firms. They fund a range of loans, from short-term bridging finance to multi-million dollar development projects. The terms are often customized and negotiated directly with borrowers or their representatives.

At Innovate Funding, we specialize in structuring fast, flexible commercial loans through a trusted network of private lenders. Whether it’s a last-minute settlement, a project that doesn’t fit bank criteria, or a borrower with a complex profile, we work swiftly to find the best solution.

Key Differences Between Non-Bank and Private Lenders

While both types of lenders operate outside traditional banking, their differences are substantial. From funding sources to risk assessment, each option has unique benefits depending on a borrower’s situation.

Non-bank lenders are structured institutions. They operate under responsible lending laws, have internal credit policies, and often rely on data-driven decision-making. Their approval process is quicker than that of banks, but it usually involves credit scoring, serviceability assessments, and documentation checks.

Private lenders, however, approach each deal pragmatically. They focus more on the asset than the borrower. A strong collateral property, reasonable loan-to-value ratio (LVR), and a clear exit strategy may be all that’s needed to finalize a deal—especially when dealing with time constraints or when traditional criteria cannot be met.

This fundamental difference influences factors like speed, documentation requirements, interest rates, and risk appetite.

Side-by-Side Comparison: Non-Bank vs Private Lender

To simplify these differences, here’s a quick breakdown:

| Feature | Non-bank lender | Private lender |

|-----------------------|-----------------------------------------------|---------------------------------------------------|

| Type of institution| Licensed finance company | Individual, group, or private company |

| Regulation | Governed by ASIC and NCCP (for consumer lending) | Less regulated, especially for business lending |

| Funding source | Securitisation, wholesale lenders, institutional capital | Private capital (individuals, SMSFs, family offices) |

| Loan assessment | Based on income, credit, and financials | Based on asset value and exit strategy |

| Speed to fund | Days to weeks | Typically 3 to 14 days (subject to legal processes)|

| Flexibility | Moderate | High – terms often negotiable |

| Loan terms | 1 to 30 years | Typically 3 to 12 months |

| Common uses | Full-doc commercial loans, refinancing | Bridging, urgent settlements, construction |

This table highlights how various lenders meet different borrowing needs. It’s not a matter of which type is better; rather, it’s about which is most suitable for a given deal or situation.

When Should You Use a Non-Bank Lender?

Non-bank lenders are a good option for those who cannot meet major bank criteria but still possess some documentation and solid financial standing. They are ideal for borrowers needing more flexibility than banks offer but don't require the speed of private lending.

Consider a non-bank lender if you’re self-employed with non-standard income or if your credit history has minor issues that would lead a bank to decline you. They are also a reliable option for refinancing, expanding a business, or property investment where speed matters, but some financial information can still be provided.

Common scenarios include:

• A business owner looking to refinance a $1.5 million commercial property loan who doesn’t meet bank serviceability requirements.

• A property investor who has multiple mortgages, making banks hesitant.

• A developer requiring funding for site acquisition or early project finance, where traditional valuation may not apply.

  
  

Non-bank lenders are great for those wanting slightly customized terms or repayment structures without straying too far from traditional lending practices.

When Should You Use a Private Lender?

Private lenders shine when speed is crucial, deals fall outside typical lending guidelines, or when traditional documentation is lacking. These lenders focus more on the strength of the security being offered and the potential exit strategy than on credit scores or income verification.

If you need a fast settlement or are dealing with an unusual asset type, private lending might be your best choice. They are also suitable when needing funding during legal disputes or business restructuring.

Here are some scenarios that exemplify private lending:

• A borrower needing $2 million within seven days to settle on a commercial property, with a buyer lined up for resale in six months.

• A developer needing a short-term cash injection to complete a project while waiting on delayed pre-sales.

• A business with outstanding ATO debt securing financing against unencumbered property to sustain operations.

  
  

Recently, Innovate Funding assisted a client needing $1.1 million within ten days to settle an industrial property in Melbourne. The client had been rejected by their bank due to an unresolved BAS lodgement and was unable to provide full financials in time. With limited time and a non-standard asset involved, we sourced a private lender who was comfortable with the LVR and security. The deal was settled within the required timeframe, avoiding penalties.

Private lenders focus on finding solutions. If the property is valuable and the risk is manageable, they can quickly execute deals tailored to unique circumstances—even when traditional lenders would not engage.

Interest Rates and Fee Structures: What to Expect

The cost of borrowing varies widely between non-bank and private lenders, making it essential to understand these differences when structuring a deal. Private loans typically have higher interest rates and fee structures due to the increased risk, faster access to capital, and lower documentation requirements. Non-bank lenders might offer competitive rates, particularly for borrowers with clean credit and the ability to provide financial documents.

Here’s a general comparison of interest rates and fees:

| Lender type | Typical interest rate | Fees |

|-------------------|------------------------------|------------------------------------------------|

| Non-bank lender | 6% – 12% per annum | Establishment fees, valuations, legal fees, and sometimes ongoing account fees |

| Private lender | 8% – 20%+ per annum | Higher establishment fees, lender fees, and exit fees |

Interest rates in private lending are not uniform. They vary based on factors such as the loan's purpose, the LVR, and whether the security is under a first or second mortgage. First mortgages with conservative LVRs (e.g., under 65%) will attract more favorable rates, while second mortgages or higher-risk loans generally command premium pricing.

Which Option Is Right for You?

Choosing between a non-bank lender and a private lender involves assessing your financial position, urgency, and documentation availability. It’s less about the cheapest option and more about which fits best with your deal's complexity and your goals.

Non-bank lenders are typically suitable when:

• You need flexibility beyond what banks offer and can provide finances.

• You’re seeking more competitive rates than private lending.

• The loan isn't urgent, but you don’t meet strict bank criteria.

• You want a long-term solution for refinancing or business expansion.

  
  

Private lenders are ideal when:

• The deal is time-sensitive and needs to settle quickly.

• Standard documentation is unavailable.

• The property or purpose is outside institutional lending norms.

• You need short-term funding with a clear exit.

  
  

At Innovate Funding, we help you evaluate your options transparently and swiftly. Our broad network of private and non-bank lenders across Australia ensures we source the right product for your deal—urgent funding, complex security, or something unconventional.

Final Thoughts

Australia’s lending landscape has evolved significantly, transcending reliance on major banks. Non-bank and private lenders now play an essential role in providing business owners, investors, and developers with the necessary capital—on terms that suit them. Understanding the differences between the two can help you avoid delays, secure better terms, and close deals more efficiently.

Non-bank lenders offer structure and flexibility, whereas private lenders provide speed and simplicity. Each has its place in the financing ecosystem, and savvy borrowers and brokers know when to leverage each option.

If you’re uncertain which fits your needs, consult a commercial lending expert. At Innovate Funding, we tailor every solution to your unique situation—whether it’s bridging finance or a time-critical settlement. When banks say no, we find a way forward.