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Private credit, explained properly.

24 plain-English guides covering how private lending in Australia actually works — what private credit is, how LVR is calculated, why interest rates sit above bank pricing, where the money comes from, and what every term in your loan documents means.

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Fundamentals

What is private credit?

Private credit is lending provided by non-bank capital — wholesale investors, family offices and funds — instead of by an APRA-regulated bank's deposit base. In Australia it is usually short-term, secured by a registered mortgage over real property, and used for business or investment purposes.

Why are private credit interest rates higher than bank rates?

Private credit costs more than bank debt because the money is funded by investors who require a return well above a deposit rate, because the lender takes risks a bank will not, and because the loans are short, fast and labour-intensive to assess. You are paying for capital that says yes quickly, on terms a bank cannot offer.

Private credit vs bank lending: what is the real difference?

Banks lend cheaply against standardised policy over long terms; private credit lends quickly and flexibly against the merits of a specific transaction over short terms, at a higher rate. Private credit is the right tool when timing, structure or documentation rules out a bank — not a permanent substitute for one.

Numbers & terms

What is LVR (loan-to-value ratio)?

LVR — loan-to-value ratio — is the loan amount divided by the value of the security property, expressed as a percentage. A $1.3M loan against a $2M property is a 65% LVR. It is the single most important measure of how much protection a lender has if the loan has to be recovered.

What fees do private lenders charge?

Beyond interest, private facilities typically carry an establishment fee, valuation and legal costs, search and registration fees, and sometimes a line fee, extension fee or exit fee. Because terms are short, fees can matter more than the headline interest rate — always compare total cost of funds over the actual term.

What is capitalised interest?

Capitalised interest is interest added to the loan balance rather than paid each month, so the borrower makes no payments during the term and repays everything at the exit. It is common in bridging and development finance, and it means the loan balance — and the LVR — grows over the term.

What are GRV, TDC and LTC in development finance?

GRV is the projected total sales value of a completed development. TDC is the total cost to build it, including land, construction, professional fees, interest and contingency. LTC is the loan divided by TDC. Development loans are sized against both GRV and TDC, and the lower resulting loan applies.

Private credit glossary: 40 terms explained

This glossary defines the terms you will meet in a private credit transaction — from LVR, GRV and TDC to caveats, deeds of priority, capitalised interest, default interest, GSAs and the wholesale investor tests.

Capital & investors

Where does private lending money actually come from?

Private lending is funded by private investor capital: high-net-worth and sophisticated investors, family offices, self-managed super funds that meet the wholesale tests, credit funds, and institutional allocators. The capital reaches the borrower either through a pooled fund or through a contributory structure where investors fund a specific loan.

What is a wholesale, sophisticated or professional investor?

Wholesale, sophisticated and professional investors are categories under the Corporations Act 2001 (Cth) for investors who do not receive retail disclosure protections. The common tests include a qualified accountant's certificate confirming net assets of at least $2.5M or gross income of at least $250,000 for each of the last two years, and investments of $500,000 or more.

Loan structures

What is a first mortgage?

A first mortgage is the security interest registered first against a property's title. If the property is sold or enforced, the first mortgagee is repaid in full before any second mortgagee, caveat holder or unsecured creditor receives anything — which is why first mortgages carry the lowest rates.

What is a second mortgage?

A second mortgage is a loan secured by a mortgage registered behind an existing first mortgage. The second mortgagee is only repaid from sale proceeds after the first mortgagee is paid in full, so second mortgages price higher and usually need the first mortgagee's consent.

What is a caveat loan?

A caveat loan is short-term commercial funding secured by lodging a caveat over a property title. The caveat prevents dealings with the title without the lender's consent, which lets the loan settle in days. Caveat loans are fast, small, expensive and intended to be repaid within weeks or a few months.

What is bridging finance?

Bridging finance is a short-term loan that covers the gap between when you need funds and when your money actually arrives — typically a property sale, a refinance, or contracted proceeds. It is repaid in one lump sum from that event, usually within three to twelve months.

What is mezzanine finance?

Mezzanine finance is subordinated debt that sits between the senior loan and the sponsor's equity in a project's capital stack. It fills the gap when senior debt will not cover enough of the cost, and it is priced high because it is repaid only after the senior lender.

What types of property can secure a private loan?

Private loans can be secured by residential, commercial, industrial, retail, vacant land, rural and specialised property. The more liquid and mainstream the asset, the higher the LVR and the sharper the pricing; specialised and remote assets attract lower LVRs because they take longer to sell.

What is a general security agreement (GSA)?

A general security agreement gives a lender a security interest over all present and future assets of a company, registered on the Personal Property Securities Register. In private credit it usually sits alongside a real property mortgage as supporting rather than primary security.

Process

How do private lenders assess a deal?

Private lenders assess the security property first, then the equity buffer, then the exit, then the sponsor, then the purpose and structure. Serviceability matters far less than in bank lending because the loan is repaid from an event, not from trading income.

What is an exit strategy in private lending?

An exit strategy is the specific, evidenced event that repays a short-term loan — a property sale, a refinance, contracted proceeds or project settlements. Private lenders assess the exit as closely as the security, because a short-term loan with no clear repayment path is simply a future default.

Why do private lenders order their own valuation?

Private lenders instruct an independent valuation from their own panel because the valuation sets the LVR the whole facility depends on, and because the valuer owes a duty of care to the instructing lender. An owner's estimate or an online figure cannot be relied on for that purpose.

How long does a private loan take to settle?

Indicative terms are usually issued within about one business day of a complete deal snapshot. From there, straightforward first-mortgage transactions commonly settle in one to three weeks, and caveat funding can settle in 24 to 72 hours. Valuation and legal work set the pace.

What does a commercial finance broker do?

A commercial finance broker structures a borrower's transaction, presents it to the lenders most likely to fund it, negotiates terms and manages the process through to settlement. For private credit, the broker's value is knowing which lenders will actually price the deal and how to present it so it gets approved.

Risk & regulation

What are the risks of private credit?

For borrowers the main risks are exit failure, default interest and enforcement against the security. For investors they are borrower default, falling property values, illiquidity during the term, construction risk and concentration. Private credit is secured but never risk-free, and returns are not guaranteed.

What is the NCCP Act and why are private business loans outside it?

The National Consumer Credit Protection Act 2009 (Cth) regulates credit provided to individuals for personal, domestic, household or residential-investment purposes. Loans genuinely for business or investment purposes fall outside it — which is why private commercial lending is described as non-NCCP, or unregulated, credit.

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