One of the most common questions in commercial finance is whether to go with a bank or a private lender. The honest answer is that it depends entirely on your deal, your timeline, and your circumstances. Neither option is universally better — they serve different purposes and work best in different situations. Here is a detailed comparison to help you make an informed decision.
Speed of Approval and Settlement
Bank Loans
Bank applications typically take four to eight weeks from submission to settlement, and that is assuming a straightforward deal with no complications. Complex applications involving company structures, multiple properties, or non-standard income can take considerably longer. Banks have multi-layered approval processes with credit committees, compliance checks, and internal policies that must be followed regardless of how urgent your deal is.
Private Lending
Private lenders can assess a deal and provide an indicative response within 24 to 48 hours. Settlement can occur in as little as a few days for deals where the security and exit strategy are clear. This speed exists because private lenders have streamlined decision-making processes and can assess deals on their individual merits without navigating institutional bureaucracy.
Best for speed: Private lending, by a significant margin. If your deal has a tight deadline — an auction, an expiring option, or a vendor who will not wait — private lending is often the only viable path.
Interest Rates and Cost
Bank Loans
Banks offer the lowest interest rates in the market, typically ranging from 5% to 8% for commercial loans depending on the product, the borrower's profile, and the security. Lower rates reflect the bank's lower cost of capital and the comprehensive due diligence they perform on borrowers.
Private Lending
Private lending rates are higher, reflecting the increased speed, flexibility, and risk tolerance. First mortgage rates generally start from around 10% per annum in the Australian market. Additional costs include establishment fees, legal fees (borne by the borrower), and valuation costs.
Best for cost: Bank loans, if you have the time and meet the criteria. However, the relevant comparison is not just the interest rate — it is the total cost of the financing solution versus the cost of not doing the deal at all.
Lending Criteria
Bank Loans
Banks assess borrowers primarily on their ability to service the loan. This means detailed analysis of income, financial statements, tax returns, credit history, and existing liabilities. Banks also have strict policies around property types, locations, borrower structures, and industry sectors. If your deal falls outside these parameters — even slightly — you may be declined regardless of the quality of your security.
Private Lending
Private lenders focus primarily on two things: the quality of the security and the viability of the exit strategy. While they still assess the borrower, the emphasis is on whether the deal makes commercial sense rather than whether the borrower fits a standardised scoring model. This makes private lending accessible to borrowers who may have:
- Complex income structures or self-employed earnings
- Recent credit events that would disqualify them from bank lending
- Non-standard property types as security
- Deals in locations that banks consider outside their appetite
- Company or trust structures that banks find too complex
Best for flexibility: Private lending. If your deal is sound but does not fit a bank's cookie-cutter criteria, a private lender can assess it on its merits.
Loan Term and Structure
Bank Loans
Bank commercial loans are often structured over longer terms — one to five years for commercial facilities, up to 30 years for investment property loans. Repayments are typically principal and interest, meaning the borrower pays down the loan balance over time. This suits long-term holds and stable income-producing assets.
Private Lending
Private loans are short-term by nature, generally with minimum terms of six to twelve months. They are structured as interest-only, with the principal repaid in full at the end of the term via the agreed exit strategy. This structure keeps monthly outgoings low during the loan period and is ideal for transitional situations, development projects, and bridging scenarios.
Best for long-term holds: Bank loans. Best for short-term projects: Private lending.
Purpose and Use of Funds
Bank Loans
Banks offer a wide range of commercial products including term loans, overdraft facilities, equipment finance, and trade finance. They can accommodate a broad spectrum of business needs, provided the borrower meets their assessment criteria.
Private Lending
Private lending in Australia is focused on business and commercial purposes secured against real property. Common uses include property acquisitions, development funding, bridging finance, and business working capital where property security is available. Private lending is not consumer lending — it is specifically for commercial and business borrowers.
When to Use a Bank
A bank loan is likely the better option when:
- You have time — four to eight weeks or more — to go through the application process.
- Your financial position is straightforward with clean tax returns and stable income.
- You are looking for a long-term facility with principal reduction over time.
- The property type and location fit within standard bank parameters.
- Minimising interest cost is the primary objective.
When to Use a Private Lender
Private lending is the right choice when:
- Speed is critical — you need to settle in days or weeks, not months.
- Your deal does not fit standard bank criteria for any reason.
- You need short-term funding with a clear exit strategy already in place.
- You are between bank facilities and need a bridge to get from one to the next.
- The opportunity cost of waiting for bank approval exceeds the higher interest expense.
Using Both Strategically
The most sophisticated borrowers and brokers do not see private lending and bank lending as an either/or decision. They use both strategically. A common approach is to use private lending for the time-sensitive acquisition phase of a project, then refinance to a bank facility once the deal is settled and the borrower has time to complete a standard bank application.
This approach combines the speed of private lending with the lower long-term cost of bank finance. It is a well-established strategy in the Australian commercial property market and one that Esteb Capital supports regularly. We provide first mortgage lending from 10% across Australia for business and commercial purposes, with interest-only terms starting from six months — designed specifically to serve as the fast, flexible front end of a well-planned financing strategy.
Whether you choose a bank, a private lender, or a combination of both, the key is matching the right finance solution to the specific requirements of your deal. If you would like to discuss how private lending fits into your next transaction, we are always available for a conversation.