Ask a room of brokers whether private lending beats bank lending, and you'll get an argument. Neither one wins outright. The two channels solve separate problems, and good brokers know when to reach for each.
Why the two models work differently
The gap between the channels comes down to regulation and funding. Banks and private lenders answer to different rulebooks. Their capital also comes from separate places.
Banks are authorised deposit-taking institutions, or ADIs. APRA licenses and supervises them under a prudential framework. Because banks take deposits from the public, strict standards apply.
Those standards cover capital, liquidity and risk. The aim is to protect depositors, which is fair and necessary. The same rules also limit how fast and how flexibly a bank can lend.
Private lenders sit outside that framework. Their money comes from wholesale credit lines, institutional mandates and private investors. With no deposits to protect, those rules don't bind them the same way.
For consumer credit, a private lender holds an Australian Credit Licence and meets ASIC's responsible lending obligations. Business-purpose lending generally sits outside those consumer rules. The one thing missing is the credit-policy rulebook behind every bank loan.
None of this makes one model better than the other. It means each one suits a different job. Banks are built for high-volume, long-term lending at thin margins.
Private lenders are built for speed and for deals that don't fit a template. The model takes on complexity that a bank's system would reject. Knowing the difference is what separates a capable broker from an average one.
Speed: days vs weeks
Speed is often the first difference a client notices. On a tight deal, weeks of waiting can cost the property. It's a common reason brokers reach for a private lender.
Bank approval timelines
A standard bank commercial loan tends to take weeks, not days, to reach conditional approval. Add any complexity, and that timeline stretches further. Multiple securities, an unusual property type or a self-employed borrower can all slow things down.
A bank's pace is built into its operating model. A loan assessment moves through layers of review, automated scoring and compliance checks. Each of those layers takes time.
Valuations run through approved panels, which stretches it further. If one condition isn't met exactly, the file cycles back to the start. Careful work, by its nature, runs slow.
For straightforward home lending, those turnaround times are usually fine. A long turnaround works well, right up until your client has to settle fast.
Private lending approval timelines
Private lenders run on a tighter clock. A human credit team works through live deals as they come in. A well-packaged file submitted in the morning can have a term sheet back by the afternoon.
Pre-approval can come within days of the scenario landing. Full settlement, with valuation and legal work included, can follow inside a couple of weeks. On urgent files, the whole process can move faster again.
The pace comes from how the decision gets made. There's no automated score to cycle through, and no template to satisfy. People read the deal, weigh the security and the exit, then make the call.
For brokers, that speed changes the conversation with clients. Instead of asking them to wait it out, you can talk in days. In a competitive market, that head start can be what wins the deal.
Flexibility: policy vs people
Bank lending runs on a credit policy. Every loan has to fit a fixed set of parameters. Property type, income verification, serviceability, loan-to-value (LVR) caps, and location: each one is a gate.
Clear the policy, and the loan gets approved. Miss it on a single point, and the answer is no. Commercial logic won't override the system.
Credit policy works well for straightforward loans. It lets banks process high volumes and manage risk at scale. The trade-off is a hard boundary, where anything outside the box gets declined regardless of quality.
Private lending works the other way. Credit decisions sit with experienced assessors who read each deal on its merits. The focus falls on the security, the exit, and whether the numbers make sense.
This is why a private lender can take on deals a bank can't. Picture a borrower with a complex trust structure, or a property type the bank won't touch, or an income profile that doesn't fit a standard verification model.
The practical effect for brokers is real. You stop forcing a deal to fit where it never will. Instead, you take it to a lender who assesses it for what it is.
LVR comparison
LVR comes up in nearly every funding conversation. Banks and private lenders weigh it in their own ways. On its own, that single number can point a broker the wrong way.
Bank LVRs
Banks lend more conservatively against commercial property than against a standard home. On a home loan, borrowing past 80% of the value usually triggers the lender's mortgage insurance, or LMI. With LMI in place, a bank can lend a high share of the property value.
For clients who want to stretch their borrowing, that reach can be an advantage. But it comes with conditions. The property has to meet the bank's valuation criteria, and the borrower has to clear serviceability.
A high LVR only helps if the borrower can actually reach it. Plenty of applicants clear the LVR test, then fall down on serviceability or valuation.
Private lending LVRs
Private lenders usually work at lower LVRs than the bank headline. A first mortgage position tends to sit below the bank's maximum. Where it lands depends on the asset, the location and the way the deal is built.
On paper, a lower headline LVR reads like a weakness. In reality, a private lender may lend against property that a bank won't value at all.
Examples run from a development site with planning approval to a specialised commercial asset. The list also takes in property that a bank's valuation panel simply avoids.
Completion matters more than the LVR number. A lower LVR that settles beats a higher LVR that declined after weeks of assessment.
Private lending LVRs aren't fixed. A well-structured deal in a prime location may attract a higher LVR, a regional asset less. Brokers who workshop the scenario directly often find more room than they expected.
Rate comparison
Interest rates are usually the first thing a client looks at. Rates are also easy to misread. A headline number rarely tells the whole story.
Headline rate vs total cost
Bank commercial rates move with the RBA cash rate, plus a margin. Private lending sits above that. The exact rate depends on the risk in the deal, the security and the term.
At the headline level, the bank rate is generally lower, but that figure is only part of the total cost. Total cost also takes in establishment fees, ongoing fees, valuation and legal costs, and the cost of time.
Imagine two loans for the same purchase. A bank loan carries a lower rate, but runs for decades. A private loan carries a higher rate, but only stays in place for a year or so.
The client exits once the project finishes or the property sells. Across that short window, the dollar cost can be modest next to what the loan unlocks. Run the comparison yourself with the bridging cost calculator.
When the higher rate is worth it
Consider a hypothetical deal. A developer has a short window to settle on a site bought well below market value. The bank can't move fast enough to hit the deadline.
A private loan, at a higher rate, can settle in time and hold the discount. The interest on a short facility may be a fraction of the value kept in the deal.
Take another case. A business owner has exchanged on a commercial property, but the existing one hasn't been sold yet. The bank won't settle the purchase until that sale completes.
A bridging loan can settle the purchase now, then clear once the existing sale lands. The timing risk goes away. The cost of a few months of bridging may be small next to losing the property.
Brokers can reframe this for clients. The real comparison weighs the cost of the private loan against the cost of the deal collapsing. Put that way, the rate conversation changes.
When bank lending wins
Bank lending is the right call in plenty of cases. For deals that fit, it should stay the first option. Here's where banks hold a clear edge:
- Long-term holds. If the client plans to hold for many years, a lower bank rate adds up over time. Private lending isn't built for the long haul.
- Standard home lending. For a metro home loan where the borrower clears serviceability, the bank channel is efficient and competitive. It's well-suited to that work.
- High LVR needed. When a client needs a high LVR, a bank product with LMI is the realistic path. Private lenders don't lend that high.
- Price first, no rush. If the client mainly wants the lowest rate and feels no time pressure, the bank usually offers it. The bank channel fits that brief cleanly.
There's no shame in placing a deal with a bank. For straightforward transactions, it's the right tool, and brokers should use it.
The mistake is reaching for that tool on every deal. Paying a premium for speed you don't need makes no sense.
When private lending wins
Private lending becomes the stronger option in specific situations. Watch for one or more of these conditions:
- Time pressure. Any deal that has to settle in days or a short number of weeks. Auction purchases, expiring options and sunset clauses all point this way.
- A bank decline. When a bank has knocked the deal back on policy, not on real credit quality. Strong security and a clear exit, plus a policy decline, make a natural private lending file.
- Complex structures. Multiple entities, trusts, mixed securities or non-standard income verification. It also covers borrowers with a recent credit event and a clear recovery path.
- Non-standard property. Specialised commercial assets, development sites, regional property or mixed-use buildings. This is security that sits outside a bank's valuation appetite.
- Short-term capital. Bridging between a purchase and a sale, development funding or business acquisition finance. Any case where the facility runs months, not decades, with a clear exit.
When these signs show up, the rate sits lower on the priority list. The real test is whether the deal gets across the line. If the alternative is no deal, private lending earns its cost.
The blended approach
Experienced brokers don't frame a deal as a bank or private. The mindset is capital sequencing.
Capital sequencing means matching the funding to each stage of a deal. One common pattern runs like this. A private loan acquires the asset quickly.
The borrower then does the work, whether that's development, renovation or selling another property. Each stage has a different risk profile. Once things settle, the facility refinances to a bank for the long-term hold.
The blended approach works well for developers in particular. A private lender funds the land and the early-stage work.
At an agreed milestone, a bank construction facility takes over, or the private lender funds the whole build, and completed stock refinances to a bank later. This approach doubles the touchpoints with each client. You place the private loan and earn that commission.
Later, you place the bank refinance and earn a second. The client sees you as the adviser who ran the whole transaction, start to finish.
At Archer Wealth, we build for this. Every facility is structured with the exit in mind from day one. When we approve a deal, we're already mapping the refinance pathway.
We're not trying to hold a client in a private facility longer than the deal needs. The aim is a clean exit for the client and a lasting relationship for the broker.
A case study in two paths
The scenario below is illustrative, built to show a pattern. It tracks how one deal can run two very different ways.
The situation. A business owner buys through a family trust. The plan is a commercial property priced at around $2.4 million. The owner already holds a residential investment worth roughly $1.8 million, with $400,000 still owing. The commercial property sits in a secondary location. Settlement has to happen within three weeks, or the vendor moves to another buyer.
Path A, the bank. The broker submits to the client's main bank. The bank asks for full financials, several years of tax returns and a panel valuation. The quoted turnaround runs to several weeks. The secondary location triggers extra review, which adds more time. The three-week deadline passes before the assessment is finished. The client loses the property.
Path B, private lending. The broker calls a private lender and talks through the scenario. A credit team reviews the deal the same day. A term sheet follows quickly, and the loan settles within the deadline. The client buys the property at the agreed price. Months later, the broker refinances the facility to a bank at a lower rate. Two commissions, and one client who stays for life.
Deals like this come across broker desks regularly. The variable is whether the broker reaches for private lending early enough.
So the picture is straightforward. Used well together, private lending and bank lending cover each other's blind spots. A broker who knows both channels and when to use each can close more deals. Clients also tend to stay with that broker longer. Every deal on your desk deserves the right kind of capital. Sometimes that's a bank, sometimes a private lender. Often it's both.
Have a deal that sits between bank and private? Let us workshop the best structure together. Contact the Archer Wealth Broker Team.