How private lending works for business owners in Australia

The bank has said no. Or it said yes, then took three months and got nowhere. Meanwhile the ATO wants paying, a supplier deadline is coming up, or a purchase has to settle by Friday. That is the gap private lending fills for business owners in Australia. Once you see how it works, it is less of a last resort and more of a normal tool. Aurelius Private are private lending brokers; we arrange these loans across a large panel of private lenders, we do not lend our own money.

What private lending actually is

Private lending is money from outside the banks. It comes from private lenders, family offices and private investors who lend against property and other assets. They set their own rules and move on their own timeline. Aurelius Private does not lend its own money. We are a private lending brokerage. We take your deal to a large panel of these lenders, find the one who will actually do it, and arrange the loan from start to finish. A bank is one lender with one set of rules. A broker with a full panel can find the lender whose rules fit your deal.

Is private lending legal in Australia?

Yes. It is a normal, legal part of the Australian finance market. The main rule to know is the National Consumer Credit Protection Act. Loans for consumers, like a home loan on the house you live in, are covered by that Act and need a credit licence. Loans to a business for a business reason sit outside it. So private lending for business owners is simple. It is business finance, used for business.

Can you borrow from a private lender?

Only if you are a business. This is for a company with an ACN, a sole trader or partnership with an ABN, or a trust. It is not for consumers, and it always has to be for a business reason. If you are after a personal loan or a loan on your own home, this is not for you. If you run a business and need money, it is.

What business owners use it for

The reasons are usually simple, and the clock is usually ticking:

• Covering a cashflow gap
• Paying out an ATO debt before it gets worse
• Paying out an old debt, or a lender who wants out
• Buying something, fitting out a space, or buying equipment
• Pulling cash out of a property you already own and putting it back into the business

The thread is the same. The need is real, the timing is tight, and the bank is either too slow or not interested. This is what working capital finance is for.

What private lenders actually look at

This is the big difference from a bank, and the part most business owners get wrong. A bank starts with your numbers. It wants years of tax returns, and it can knock you back over one bad year even if the business is fine now. Private lenders start with two things. The security, and the exit. Most do not need to see your financials at all. They will ask for bank statements to check the business is really trading and making money, but tax returns and full accounts usually stay in the drawer.

The exit matters most. It is how the lender gets paid back. Refinancing to a bank once your numbers catch up. Selling an asset. A contract or invoice being paid. A rebate coming through. If the exit is clear, the deal gets done. If it is fuzzy, no rate will save it.

How much does a private lender charge?

The rate depends on where the lender sits on the title. A first mortgage is the safest spot, so the rate is closest to a bank. It can start around 7.5 to 8 percent, and most sit between 8.5 and 9.5 percent. A second mortgage sits behind the first, so there is more risk and it costs more. Usually about double a first. Most sit between 15 and 18 percent, and the full range is around 11 to 25 percent. A caveat loan sits behind a registered mortgage. It is the riskiest spot, so the rate can run into the high twenties. Same borrower, same property. The rate changes based on where the lender sits.

What are the repayments on a private loan?

Almost all private loans are interest only, because the terms are short. You have two options. Pay the interest each month, like a normal loan. Or capitalise it, which means the interest is added to the loan and you make no repayments during the term. Capitalising is common when a business wants to keep all its cash working until the exit. On a $50,000 loan or a $500,000 one, it works the same way. You either pay the interest monthly, or let it build up and clear it all at the exit. Terms are short too. Usually one to twelve months. Some lenders go to 24 or 36 months, and a few offer longer products again.

How much can you borrow?

Loan sizes range from small caveat loans up to big numbers. Most private lenders go up to about $10 million on a first or second mortgage. Some go close to $50 million on the right first mortgage deal. The number that matters most day to day is the LVR. That is the loan as a percentage of the property value. Most private lenders go up to 75 percent on first and second mortgages, and some go to 80 percent for the right deal. One thing trips people up. The LVR has to cover everything. The new loan, all the fees, the interest if you are capitalising it, and any existing debt still on the property. It is the total against the value, not just the new money.

Fees, and how to read a term sheet

Private lending has more parts than a bank loan, so there are more fees. Expect the interest rate, an assessment or application fee, a document fee, legal costs, and a broker fee. None of it should be a surprise. When a lender offers a deal, the broker gets a term sheet with the full breakdown. It shows the gross loan, every fee, the interest, and the net figure. The net figure is what actually lands in your account at settlement. Look at the net number. That is what you really walk away with. The broker fee is usually built into the gross loan, so it comes out of the loan itself. Or you can pay it yourself if you would rather not carry it in the loan.

How fast can private lending settle?

Speed is the whole point. Most deals can settle within 72 hours, especially when a formal valuation is not needed. A valuation is the thing that slows it down. Depending on the property and the type of val, it can add up to a week.

To move fast, have these ready before you call a broker:

• A council rates notice
• A current mortgage statement
• Basic details on the business
• The property address
• Your exit plan

With those five things, a broker can get you a term sheet quickly. We recently arranged a first mortgage on a Gold Coast apartment that had to settle inside a week. It was done on an accountant's declaration, with the papers signed online. In private lending, speed is not a sales line. It is the reason the market exists.

Can you get an unsecured private business loan?

Usually not. Private lending is secured lending. The security, almost always property, is what makes the fast, low-doc approach work. It is why a lender can say yes in days without three years of accounts. There are unsecured business loans out there, but they are a different thing. Usually smaller, dearer, and based on your cashflow rather than an asset. If you own property or have equity in one, secured private lending will nearly always give you more money, at a lower rate, and faster.

A recent deal

A podiatry clinic was almost through a big fit-out. The landlord's rebate was agreed and only the last stage was left to pay for. But the money had not landed yet, and the bank's timing did not match the builder's. The business did not have a numbers problem. It had a timing problem, which is exactly what private lending fixes. We arranged a $500,000 second mortgage to fund the last stage and give the business some breathing room while the rebate came through. The rebate was the exit. The fit-out finished, the clinic opened, and it went on to become the owner's best location. A bank could not have moved that fast. A private lender, with good security and a clear exit in front of them, could.

Start with the scenario

If you are a business owner and the bank is too slow or has said no, the quickest way to find out what is possible is to put your situation in front of a broker who can take it to the right lender. Start your application or get in touch, and we will tell you what we can arrange, and roughly what it will cost, the same day.