Quick answer
A bank usually suits a business with clean financials, time to wait and a long-term need. A private lender suits a property owner who needs funds quickly, has equity but messy paperwork, ATO debt or a short-term gap, and has a clear exit. Private lending costs more, so it works best as a bridge with a defined end date, often finishing with a refinance back to a bank.
Key points
- Banks lean on serviceability and full financials; private lenders lean on property equity and the exit
- No formal valuation required with a private lender, which removes a common bank delay
- Private funding is priced higher, so match it to a short, defined need
- Many borrowers use a private loan now and refinance to a bank later
- Interest on business borrowing can be deductible either way — your accountant confirms the detail
Most business owners walk into their bank first. That makes sense: banks are familiar, they offer long terms, and for a business with tidy books and plenty of time they are hard to beat. But a bank’s process is built for a particular kind of borrower, and when your situation sits outside that shape — a deadline next week, a tax debt, a property with equity but income that doesn’t show on paper yet — the answer can be slow, conditional or simply no.
A private lender is built for a different job. It looks hardest at the property and how the loan will be repaid, and it can move in days rather than weeks. Neither is “better” in the abstract. The useful question is which one fits the deal in front of you, and for how long.
What actually differs between a bank and a private lender?
The differences come down to what each lender relies on to feel safe. A bank relies mainly on your ability to service the debt over many years, proven through financial statements, tax returns and a long checklist. A private lender relies mainly on the equity in the property and a believable plan to repay within a short term.
The government’s own small business guidance makes the same distinction between secured and unsecured lending: a secured loan is backed by an asset the lender can turn to if things go wrong, while an unsecured loan rests on the business’s financial health. Private property-secured lending sits firmly in the first camp.
| What you’ll notice | Typical bank | Private secured lender |
|---|---|---|
| Main focus | Serviceability and full financial history | Property equity, security position and exit |
| Paperwork | Tax returns, financials, BAS, forecasts, business plan | Property details, ID, what’s owing, evidence of exit |
| Property assessment | Usually a formal valuation ordered by the bank | No formal valuation required — the property is assessed directly |
| Time to funds | Often several weeks | Possible within 24–48 hours once documents are in |
| Term | Long, often decades | Short: private first mortgages 1 to 24 months |
| Repayments | Monthly from the start | Interest can be prepaid or capitalised, so possibly none during the term |
| Credit hiccups, ATO debt | Frequently a deal-breaker | Considered case by case |
| Price | Lower | Higher, set on each deal’s risk |
When does a bank still make more sense?
Be honest with yourself here, because a private loan used in the wrong situation is an expensive mistake.
A bank is usually the right call when:
- The need is long-term. If you are buying premises you will hold for a decade, short-term private money is the wrong tool.
- Your financials are clean and current. Lodgements up to date, profits that clearly cover repayments, no ATO arrears.
- Time is on your side. If settlement is two months away and nothing is urgent, the bank’s slower process costs you nothing.
- There is no defined end date. Private funding needs a clear exit. If you can’t name one, you need a long-term facility.
When is a private lender the better tool?
Private secured lending earns its place when speed, flexibility or the shape of your situation matters more than price. Common examples:
- A builder needs working capital to bridge between progress claims, and the bank wants two years of financials it hasn’t finished preparing.
- An investor has found a site and must pay a deposit by Friday.
- A business has an ATO debt growing interest every day and wants it cleared now, then refinanced once lodgements are back in order.
- A borrower has a debt-free commercial property and needs funds against it within the week.
- A developer holds completed stock and wants to release equity while the units sell.
In each case the property provides the comfort, and the plan to repay is visible. That is the sweet spot. Our private first mortgage business loans page covers the core product, and if you already have a bank loan you’d rather replace, see refinancing a bank first mortgage into a private loan.
How does a private lender assess a deal without a formal valuation?
This is one of the biggest practical differences, and it often decides the timeline. Banks typically wait on a formal valuation before they will issue approval, and that report can take days to arrange and come back lower than the owner expected.
A private lender that doesn’t use valuers assesses the property itself: location, type, condition, comparable sales, how saleable it is and what is already owing against it. Removing the valuation step does three things:
- It takes days out of the process.
- It saves you the cost of a valuation report.
- It avoids a conservative valuer figure quietly shrinking what you can borrow.
We explain the approach in more detail on our no-valuation loans page.
Is the interest still tax deductible if the lender is private?
The tax rules look at what the borrowed money is used for, not at whether the lender is a bank. The ATO lists interest on money borrowed to produce assessable income or buy income-producing assets among general business operating expenses, and its list also includes legal expenses incurred in borrowing money. In other words, a business-purpose private loan is assessed on the same footing as a business-purpose bank loan.
Two practical points to raise with your accountant: how prepaid interest is timed across income years, and how establishment and legal costs are treated. The ATO’s guidance explains that prepaid expenses of $1,000 or more usually need to be spread over the period they cover. One more change worth knowing: from 1 July 2025, the general interest charge the ATO levies on overdue tax is no longer deductible, which is one reason some owners choose to clear a tax debt with property-secured funds rather than let it run.
Can you use a private lender and a bank together?
Yes — and this is where private funding often works best. Rather than an either/or choice, many borrowers treat private money as the first leg and the bank as the second.
The private loan solves today’s problem quickly. The time it buys is used to fix whatever the bank was concerned about: lodge the overdue returns, finish the project, settle the sale, or let a new lease bed in. Then the bank refinance pays out the private loan. That refinance is the exit, and it should be planned from day one — our guide to choosing an exit strategy walks through how lenders test it.
Illustrative example: A Geelong builder owns a warehouse worth around $2m with $600k owing to the bank. A large job has stretched cash flow, the BAS is overdue, and the bank wants updated financials before it will lend more. The builder takes a $400k private second mortgage behind the bank (illustrative total debt of $1m, a 50% LVR) with interest capitalised so there are no monthly repayments. Over the next nine months the job completes, the financials are prepared, and the bank refinances the whole $1m debt, paying out the private loan. The private funding cost more than bank money would have — but it kept the business trading while the bank’s conditions were met.
Which questions should you ask either lender before signing?
Whether you end up with a bank or a private lender, ask the same questions and compare the answers side by side.
- What is the total cost to the end of the term? Include interest, the assessment or establishment fee, legal costs and any discharge costs — not just the headline figure.
- When exactly are funds available? Ask what must be in hand for that to happen.
- What happens if my exit is a little late? A lender who discusses this openly before you sign is easier to deal with later.
- Are there monthly repayments, or is interest prepaid or capitalised? This changes your cash flow dramatically.
- Is my enquiry going to one lender, or out to a panel? Every time your details are sprayed around, you lose control of who is looking at your file.
Does settlement work differently with a private lender?
Not in any way you’ll notice. Property settlements are increasingly completed online. PEXA, an electronic settlement platform used by more than 10,000 lawyers, conveyancers and financial institutions, describes a process where all parties sign digitally, and at settlement funds are exchanged electronically and eligible documents are lodged with the land registry — typically within minutes once everyone is ready. Your solicitor or conveyancer handles this whether the incoming lender is a bank or a private lender. Our guide on what happens at settlement covers the steps in order.
Not sure which path fits? Check whether you qualify
If you have equity in property and a clear way to repay within a year or two, a private secured loan may get you moving while a bank is still asking for paperwork. Not sure whether you need a first mortgage, a second mortgage or a caveat? Our 60-second loan quiz points you in the right direction.
When you’re ready, start your enquiry here. It takes about a minute, there’s no credit check just to ask, and your details stay with us rather than being forwarded to a list of lenders. A specialist from our lending partner fundU reads every enquiry personally. The most useful thing you can do is be precise about the property and exactly what is owing on it — get those right and the answer you receive will be the real one. Tell us about your property and what you need.
Frequently asked questions
Is a private lender more expensive than a bank?
Generally, yes. A private lender takes on deals a bank won't, settles faster and often funds without full financials, and that flexibility is priced in. Each loan is priced on its security, LVR, term and exit, so the gap varies from deal to deal.
Will going private hurt my chances with a bank later?
Not by itself. Plenty of borrowers use a short-term private loan to fix the issue a bank was worried about — overdue lodgements, an ATO debt, a half-finished project — and then refinance. Keeping the private loan clean and repaying on time is what helps.
Do private lenders check credit?
There is no credit check when you first enquire with us. A credit file may be reviewed later in the assessment, but bad credit, past defaults and ATO debt are considered case by case — equity in the property and a clear exit carry the most weight.
Can I keep my bank loan and still borrow privately?
Often, yes. A second mortgage or caveat loan can sit behind your existing bank first mortgage, so you leave the bank facility untouched and add private funds on top, provided the property has enough equity.
How fast can a private lender actually settle?
Funding is possible within 24–48 hours for up to $5m once documents are in, and smaller property-secured amounts from $20k to $250k are possible the same day. The speed depends mostly on how quickly title, ID and solicitor steps are completed.