What is private lending in Australia?

Private lending is lending or borrowing funds by private finance, individuals or lending companies. Whist the banks, specifically the major four lenders that being (Westpac, ANZ, NAB & CBA) are the biggest secured lenders in Australia, there are many transactions that dont fit the big bank's criteria but are still strong options financially for many Australian businesses in most cases allowing them to grow and better their business.

Types of Private Loans

Private loans or loans from non-bank lenders are typically more short term products which use property as security and range from 1 month to 24 or 36 months at most. These can be used for a various amount of loan purposes however the most common being a short term bridge. Otherwise it may be used for any commerical purpose such as working captial, briding receviables or startup an business purhcase. Due to the risk in some of these purposes especially the startup space this is why you don't see many banks play in this space.

How do I know when to use a private loan?

As a business owner it is important to understand when or if a private loan is nessesarry. Private loans are usually very quick meaning that you can get fast access to funds when you need them most. As mentioned the rate and sometimes the fees can be higher than the bank so its important to calculate whether or not the loan is going to be worth it. If the cost of the loan outweighs the return from a opportunity or purpose you are using the funds for then that would be a perfect time to use one. The same goes for if you require the funds right now, it may take a bank 2 months before they approve you causing you to miss a opporunity for your business.

Do I qualify for a private loan?

Tpyically in the private lending space most lenders require security in the form of property usually taking a 1st mortgage, 2nd mortgage or in some cases a caveat against your property. Generally speaking you will find that most private lenders or non-bank lenders will lend up to 75% LVR (Loan to value ratio). Meanign if you had a property worth $1 million in the current market and owed $500k to a bank, they could lend $750k less the mortgage leaving you with $250k to borrow.  Aside from this they will also be looking for a clear loan purpose and exit stradegy to repay the loan.

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