Private lender vs bank: which one fits your business loan?

A bank and a private lender ask two different questions. The bank wants to know whether the business can comfortably repay the loan out of its income for years to come. The private lender wants to know what the property is worth and how, specifically, the loan will be paid off at the end of a short term. Everything else, from price to speed to paperwork, follows from those two questions.

So don’t frame it as cheap money against dear money. Ask instead which question your situation answers more convincingly.

How does each one decide?

A bank works from a credit policy built around serviceability. It reads two years of financials and tax returns, current BAS, existing debts and your credit file, then tests whether profits cover repayments with room to spare. Property security helps, but it rarely rescues an application that fails the income test. Banks lend depositors’ money and are supervised by APRA, which is a big part of why they’re careful, and also why they’re usually the cheapest.

A private lender uses capital from investors, from a fund, or from its own balance sheet. ASIC’s September 2025 review of the sector described Australian private credit as a rapidly expanding market of about $200 billion, and the RBA notes it is particularly concentrated in real estate. For a business borrower, that shows up as property-backed loans, held by way of a caveat or a first- or second-ranking mortgage, sized on equity, and approved on the strength of the exit plan. Credit history and tax returns still matter, but far less.

Our guide to private business loans goes deeper into how the funding models differ.

Head to head

	Bank	Private lender
What it mainly asks	Can income service this for years?	Is there enough equity, and what’s the exit?
Typical term	Several years, sometimes longer	A few weeks to about two years
Security	Often residential property plus a general security agreement	Real estate: residential, commercial, industrial, rural or land
Credit history	Weighs heavily	Considered, but secondary to equity
Documents	Full financials, tax returns, BAS, forecasts	ID, property details, a short explanation of purpose and exit; sometimes bank statements
Speed	Usually a few weeks for secured business loans	Caveat loans in a day or two; mortgages in days to a couple of weeks
Total cost	Usually lowest when you qualify	Higher; a larger share sits in fees
Repayments	Monthly principal and interest is common	Often interest-only, prepaid or capitalised, with the principal repaid at the end
Flexibility	Policy-driven, with limited room for exceptions	Each deal assessed on its merits

When does a bank win?

• You’ll need the money for years. Long-term debt, such as buying premises or a business, is far cheaper over five or ten years at bank pricing.
• Your accounts are lodged, current and show steady profit. Two years of profit, lodged returns and a clean credit file are exactly what banks reward.
• There’s no hard deadline. If a few weeks of assessment won’t cost you anything, the bank’s process is worth the wait.
• You want the whole relationship. Accounts, merchant facilities, bank guarantees for a lease and an overdraft all sit in one place.

Banks are a great source of business finance and, when you fit, they’re often the best deal in town. If yours has made you an offer, put it through the loan cost comparison calculator before you look anywhere else.

When does a private lender win?

• Time is the problem. A property settlement next week, a supplier who has stopped deliveries, or a bank that’s taking too long to approve.
• The bank has already said no. Tax debt, a default, overdue returns or a short trading history push many good businesses outside bank policy.
• You’ll only need the money briefly, and you know what repays it. Waiting on a property sale, an insurance payout, a large debtor payment or a planned bank refinance.
• The security is unusual. Vacant land, rural holdings, mixed-use buildings and properties already carrying a bank mortgage can all work for private lenders.

Have equity and a deadline? Run us through the details and we’ll tell you plainly whether private money is the right fit.

Why is the exit plan so important?

With a bank, the loan is repaid gradually from trading income. With most private loans, the bulk of the principal is due in one go at the end of the term. That makes the exit, the event that pays the loan out, the single biggest risk in the whole arrangement.

Strong exits are specific and checkable: a contract of sale on another property, an ATO refund already assessed, a refinance that a bank has indicated it will consider once a tax debt is cleared. Weak exits are hopes: “trading should pick up”. A good private lender will test your exit hard, and that’s in your interest too. If the exit slips, extension fees and, in default, much higher interest can eat equity quickly. Our glossary entry on the exit strategy has examples of both.

What does a private loan cost in dollars?

Nothing on this site quotes rates. What you’ll want from any private lender is a written figure for the total cost, made up of:

• the establishment fee
• the lender’s legal costs, plus your own solicitor
• the valuation, if one is needed
• interest for the full term, whether prepaid, capitalised or paid monthly
• any line, extension or discharge fees
• the default interest clause, so you know the downside

Here’s an illustrative case, not a real client. An Adelaide joinery business needs $150k to pay a supplier and a quarterly ATO bill while it waits about four months for a builder to pay a large retention. The bank wants updated financials that the accountant can’t finish for six weeks. A private lender offers five months against the owner’s house, sitting behind the existing home loan as a second-ranking mortgage, with interest prepaid from the advance. The owner adds every fee to the prepaid interest, compares that total against what a six-week wait would cost in lost supplier credit and ATO penalties, and makes the call with real numbers in front of them. When the retention lands, the loan is repaid in full.

If the money had been needed for three years instead of five months, the bank would almost certainly have been the better option, even with the wait.

Questions to ask a private lender

1. Whose money is it? The lender’s balance sheet, a pooled fund, or investors matched loan by loan. It affects flexibility on extensions.
2. What’s the total amount payable, all fees included? Get it in the letter of offer.
3. What happens if I repay early? Is prepaid interest refunded, or is there a minimum term?
4. What does an extension cost, and who decides?
5. What’s the default interest, and when does it start?
6. Is the lender an AFCA member? It gives you an external complaints path.

ASIC has been pressing the private credit industry to lift transparency around fees and conflicts. Its focus so far is on investors, but borrowers benefit from the same habit: ask for everything in writing.

Ready to weigh up bank and private options?

We work with owners who sit on both sides of this line, and our own lenders, HomeSec Business Finance and EquityTap, lend privately against property when a bank can’t help in time. The enquiry takes about a minute to complete, and asking us doesn’t mean a credit check. We keep your details in-house; they aren’t fired off to every funder going. A real member of the team considers your equity, deadline and exit, and then phones you. Describe the property, the amount and your repayment plan truthfully, which is what lets our first suggestion be one that can genuinely settle.

Check your private and bank options →