Private finance: when the deal is good and the bank is the wrong door

What private finance is

Private finance is lending by someone other than a bank: an individual lending their own money, a private mortgage fund pooling investors' money, a family office, or a private credit firm managing capital for institutions. The Reserve Bank's work on non bank lending describes these lenders as filling gaps left by the banks, with different risk appetites and fewer standard rules. ASIC put Australia's private credit market at around $200 billion in 2024, with roughly half of it focused on real estate.

Practically, it means a decision made by people who look at the deal in front of them rather than at a credit policy written for thousands of loans. A lender who can see that a settlement is on Friday, that the property is worth what you say it is worth, and that a sale in four months repays them, can fund in days.

What private finance is used for

• Bridging a purchase or a sale: buying before selling, or completing a purchase when a bank cannot be ready in time. See bridging finance.
• A settlement about to fail: finance fell over, a co purchaser pulled out, a valuation came in short.
• Cash out for a business purpose: pulling equity out of property quickly to fund stock, a tax bill, a contract or an opportunity.
• Second mortgages and caveat loans: raising money behind an existing lender rather than refinancing it. See caveat loans and second mortgages.
• Land, sites and development: buying a site, funding a build, or holding finished stock. See development finance.
• Buying a business: funding an acquisition on earnings, on assets, or on both. See business acquisition finance.
• Working capital, trade and equipment: funding against invoices, stock or plant rather than property. See working capital and trade finance and equipment and asset finance.

How funders decide

A bank underwrites the borrower: income, servicing, credit history, the policy box. A private funder underwrites the deal. Four things carry it.

1. The security. What is it, what is it worth today in a sale that has to happen, and what already sits in front of them. Loan to value is the main limit on a property secured deal, and private funders set their own, usually lower than a bank's because they are pricing for a quick exit rather than a thirty year relationship.
2. The exit. How they get repaid: a sale with a contract and a date, a refinance a bank has indicated on, a project completing, a receivable landing. A vague intention to refinance is not an exit.
3. The time. How fast it has to happen, and whether the valuation, the title and the solicitors can keep up.
4. The story. What the money completes, and what a funder will find anyway. Arrears, a tax debt, a default, a caveat or a declined application rarely kill a private deal. Finding them late usually does.

What it costs, and how it is quoted

Private money is quoted as a package rather than as a single rate. Expect some combination of an interest rate (often quoted monthly on short facilities), an establishment or line fee, the funder's legal costs, a valuation, and sometimes an exit fee. Interest is frequently prepaid or capitalised, which means it is deducted from the advance or added to the balance, so the cash that reaches you on day one is less than the loan amount. Compare the total cost over the months you actually need the money, not the headline rate.

Terms are short. A bridge is usually written over a few months to a couple of years with a defined exit, interest only, and no penalty for repaying early on many facilities. Ask about default interest before you sign: it is the number that hurts if the exit slips.

Deal sizes, and who looks at them

Size changes who funds it. Smaller property secured deals are the home ground of individual lenders and private mortgage funds, and they settle fastest. Larger deals attract funds and family offices, with a valuation and legal process every time. Above roughly twenty million dollars you are generally dealing with private credit firms and institutional funds: full due diligence, a term sheet, and a slower but real process. Joshua places deals across all three, which matters, because a funder who is wrong for the size will simply not respond.

What to have ready

• What the money is for, how much, and when it is needed.
• The security: address, what it is worth, what is owing, and any caveats or second mortgages.
• The exit: the event, the date, and the evidence (a contract of sale, a letter from a bank, a feasibility, a signed customer contract).
• Who is borrowing: the company or trust, the directors, and whether guarantees are available.
• Anything awkward, said up front.