If you have ever been turned down by a bank or needed finance faster than a traditional lender could deliver, you have likely come across the term private lending. In Australia, private lending has grown significantly over the past decade, filling a critical gap in the commercial finance market. But what exactly is it, how does it work, and is it the right option for your situation?
Defining Private Lending
Private lending refers to loans provided by non-bank entities — typically private funds, high-net-worth individuals, or specialist lending firms — rather than traditional banks or credit unions. These lenders operate outside the conventional banking system, which allows them to assess deals on their individual merits rather than relying on rigid credit scoring models.
In the Australian market, private lending is used almost exclusively for business and commercial purposes. This includes property development, bridging finance, construction funding, and short-term capital needs where timing is critical. It is not consumer lending — borrowers are typically companies, trusts, or experienced investors with a clear commercial objective.
How Does Private Lending Work?
The mechanics of a private loan are straightforward compared to a bank application. Here is a typical overview of how the process works:
- Application and deal assessment: The borrower presents the deal, including the property or asset being used as security, the loan amount required, and the intended use of funds. Private lenders focus heavily on the asset and the exit strategy rather than the borrower's income history.
- Valuation and due diligence: The lender arranges a valuation of the security property and reviews legal documentation. This process is significantly faster than a bank's — often completed within days rather than weeks.
- Offer and settlement: If the deal stacks up, the lender issues a letter of offer outlining the rate, term, fees, and conditions. Settlement can occur in as little as 48 hours in urgent cases.
- Repayment: Most private loans are structured as interest-only for the duration of the term, with the principal repaid at the end via an agreed exit strategy — such as refinancing to a bank, selling the property, or completing a development and selling down stock.
Key Features of Private Loans in Australia
Private lending differs from bank finance in several important ways. Understanding these distinctions helps borrowers make informed decisions about whether it is the right fit.
Security-Focused Assessment
Banks lend primarily based on the borrower's ability to service the loan — income, credit history, and financial statements. Private lenders, by contrast, focus on the quality of the security (usually real property) and the viability of the exit strategy. This makes private lending accessible to borrowers who may not meet traditional bank criteria but have strong assets and a clear plan.
Speed
One of the biggest advantages of private lending is speed. Where a bank application might take four to eight weeks, a private lender can often assess and settle a deal within days. For property developers competing at auction or businesses needing to act on a time-sensitive opportunity, this speed is invaluable.
Interest-Only Repayments
Most private loans are structured on an interest-only basis. This keeps cash flow manageable during the loan term, which is particularly useful for development projects where revenue only arrives upon completion and sale. Terms typically range from six to twelve months, though longer arrangements can be negotiated depending on the deal.
First Mortgage Security
Reputable private lenders in Australia generally lend on a first mortgage basis, meaning they hold the primary security position over the property. At Esteb Capital, for example, first mortgage lending starts from 10%, and every deal requires a clearly defined exit strategy to protect both the lender and the borrower.
Who Uses Private Lending?
Private lending serves a wide range of commercial borrowers across Australia. Common use cases include:
- Property developers who need fast access to capital for site acquisitions or construction.
- Business owners requiring short-term working capital while waiting on receivables or contract settlements.
- Investors purchasing at auction where unconditional finance is needed quickly.
- Borrowers in transition who are between bank loans or restructuring their finances and need a bridge to get from A to B.
What all these borrowers have in common is a clear commercial purpose and a defined exit strategy. Private lending is not designed as a long-term financing solution — it is a strategic tool for specific situations.
Costs and Considerations
Private lending rates are higher than bank rates, reflecting the speed, flexibility, and higher risk profile of the deals. Borrowers should expect rates starting from around 10% per annum for first mortgage positions, with the exact rate depending on the loan-to-value ratio, the type of security, and the complexity of the deal.
It is also important to note that all legal and associated costs are typically borne by the borrower. This includes valuation fees, legal fees for both sides, and any applicable establishment fees. Borrowers should factor these costs into their project budgets from the outset.
Is Private Lending Right for You?
Private lending is not for everyone, and it is not meant to replace bank finance. It works best when you need speed, when your deal does not fit neatly into a bank's lending criteria, or when you have a short-term commercial need with a clear repayment plan.
If you are considering private finance for a commercial project anywhere in Australia, the first step is to speak with a lender who understands your situation. At Esteb Capital, we work with borrowers and brokers across the country to assess deals quickly and provide straightforward funding solutions. Every deal is different, and a conversation is the best place to start.