Bad credit business loans: why private lenders look past the credit file

You get a default on your credit file. A payment plan falls behind. One year of trading looks bad, and your accountant points it out. Any one of these can get a bank to say no, even when your business is doing fine. That is because the bank is not really looking at your business. It is looking at a credit score. Private lenders look at something else, and if you own property, that is usually what gets the deal done.

Aurelius Private are private lending brokers. We arrange bad credit business loans against property, through a panel of private lenders across Australia. Here is why a black mark that stops a bank does not stop them. The simple version: if there is enough equity in the property and a clear way to pay the loan back, most private lenders will fund it.

What the bank is really saying no to

When a bank looks at a business loan, your credit score does most of the work. Every missed payment, default and credit check sits on your file, and the bank's computer counts them all. A small default from two years ago can sit next to a good, profitable business and still get you knocked back. The system is built to say no to anything that looks risky.

That is the system doing its job. Banks lend cheap by only lending to clean files, in bulk, with little thought put into each one. The downside is there is no room for your story. The computer cannot see that the default was a billing stuff-up, or that the bad year was one lost contract, or that things have turned around. It sees a mark, and the mark decides.

What a private lender actually looks at

A private lender does not use that computer. They look at one deal at a time, by hand, and they care about two things.

First, the property. How much equity is in it after any loan already on it. That equity is what the lender falls back on if things go wrong, so it does the same job a clean credit file does at a bank. More equity, and less of everything else matters.

Second, the exit. A private loan is short-term money, so the lender wants to know exactly how they get paid back. That might be a refinance to a bank once your file is tidy, a property sale, a build finishing, or money owed to you coming in. A clear, believable exit is what turns a messy file into a deal that works. Your credit history still matters, but mostly it changes the rate. It rarely decides yes or no.

Equity is the real test

Here is the number that matters. Most lenders across the board will go up to about 75% of the property's value. That is not 75% on top of what you already owe. The 75% has to cover everything: any loan already on the property, the new money you want, and the interest and fees for the whole term. Add it all up, and it has to fit under that line.

So work out your room like this. Take 75% of the property's value, then take off any loan already on it. What is left is roughly what is there for the new loan, and the interest and fees come out of that too. If there is not enough space under 75%, the deal does not fit, no matter how good the exit is.

That is why bad credit is usually a price problem, not a dead end, as long as there is room under 75%. If the property is already loaded up with debt, your credit history barely matters, because there is nothing left for the lender to lend against.

The exit has to be real

The most common exit is a refinance. The private loan buys you time to fix whatever the bank did not like: an unpaid tax debt, a default that drops off, a couple of clean quarters in the books. Then you refinance to a cheaper lender once you qualify again. This only works if that path back is real and has a date on it. A hope is not an exit.

When the fix is a specific debt, the exit can be even tighter. Clearing ATO tax debt is often what makes a business able to refinance at all, because a bank will not touch a company that owes tax. Pay the tax now, get your lodgements up to date, refinance out. Same idea with a caveat over a sale that is a few weeks away.

What counts as bad credit for a business loan

In real life the file usually has one or more of these: a default listed by someone you owe, a payment plan that fell over, a court judgment, tax or ATO debt, a past bankruptcy that is now discharged, or just a low score with too many recent credit checks. None of these are an automatic no on a secured deal. Each one changes the rate and how much a lender will lend, and each one is easier to place with more equity behind it.

How the deal is set up

The security follows the equity. If the property has no loan on it, or only a small one, a first mortgage is the cleanest and cheapest way in. If there is already a bank loan in first place with equity behind it, a second mortgage lets you borrow against that equity without touching the bank loan. If speed is the whole point and the loan is short, a caveat loan can settle fastest. Which one fits depends on your equity, your timing, and what your current lender allows.

It costs more, and that is the trade

Private money costs more than a bank, and more again when your credit is bad, over a short term. That is not a trick. It is the cost of a lender doing the work by hand, moving in days, and looking past a file the banks say no to. Because these loans are a bridge, not something you keep for years, the number that matters is the total cost over the months you actually hold it, not the rate on the sticker. If the loan saves a deal, clears a debt that was growing, or keeps the business trading while it recovers, the maths usually adds up. If it just puts off a problem with no way out, it does not, and a good broker will tell you that before you sign.

When it does not work

Two cases. First, no equity and no exit. If there is nothing for the lender to fall back on and no real way to pay it back, no amount of appetite fixes it, and the honest answer is no. Second, personal borrowing. The loans we arrange are for business, not personal use. A personal bad credit loan is a different, regulated type of credit, and that belongs with a licensed consumer broker, not us.

Put the deal in front of someone

Bad credit is a bank problem more often than a deal problem. If you own property with equity in it and you can see the way out, your file is rarely what stops the finance. The quickest way to find out is to put the property, the credit history and the exit in front of a broker who can take it to the right lender. Start your application or get in touch, tell us what is on the file and what the exit looks like, and we will tell you straight whether we can place it.