The Benefits of Private Lending (But Buyer Beware)

There’s no arguing the utility of private funding. Private lenders offer many benefits over mainstream lenders, mainly due to operating outside of the confines of consumer credit laws in Australia. This flexibility regarding lending criteria means that many business owners seek alternative lenders to fund various business finance needs.

The appeal of private funding is undeniable; however, caution needs to be exercised — not every credit provider has the legal and moral integrity you’d expect. Consumer credit laws, whilst often a pain point for borrowers, do offer a level of protection.

Here’s how you can effectively access the benefits of a private lending solution without being stung.

What are private lenders?

Private lenders (sometimes referred to as private loan lenders) are non-bank lenders who offer finance to borrowers, particularly businesses. Private lenders are non-bank lenders backed by investor funds, super funds and sometimes other lenders.

How does a private lender differ from a traditional lender?

Traditional lenders, such as the four big banks in Australia and other major banks and credit unions, are all bound by a complex web of Australian lending law. This means they must apply strict and inflexible lending criteria to finance applications. Often, this results in a lengthy application process and creates difficulty for businesses, particularly those in the start-up phase, to ‘fit the mould’ and be approved for finance. Many business owners would have been rejected for bank loans at some point in time.

On the other hand, a private lender is non-institutional and can negate the complexity and rigidity of lending laws. The flexibility that private lenders provide means that the loan process is often much more efficient, with less documentation required for the loan application and the result often not reliant on the results of a credit check — which is good news for business owners with bad credit!

The benefits of private lenders

For a business owner whose cash flow may be irregular, who has bad credit due to the challenging business landscape or who’s setting out on a business venture — non-bank private lenders are an attractive option.

Private lending specialists can work with businesses to arrange an exit strategy for loan repayment, often backed by a commercial property, investment property or residential property (such as with a caveat loan). This means that tax returns, revenue forecasts, trading history and credit history don’t always need to be scrutinised when accessing private funds.

Even better, many lenders prefer interest to be capitalised for 6 to 12 months, which means they’re great for cash flow and preserving working capital if you have a solid exit strategy.

What private loans are available to businesses?

You may be surprised when looking into your private loan options to learn about just how many non-bank business loans are available:

• Property Loans
• Construction loans
• General business loan/commercial loans
• Working capital
• Bridging loan or bridging finance
• Bad credit loans
• Caveat Loan
• Development loans
• Cash out
• Cross collaterisation
• Distressed loans
• Notice to complete loans
• Finance for plant and equipment
• Second mortgages
• Tax debt loans – including if a DPN has been issued

The list of private lending loans in Australia is vast, however, finding the right finance solution does mean doing your due diligence on your private lending providers.

Things to beware of when using private money lenders in Australia

Usually, if you have an existing property to offer as security for a commercial loan, the process for application is very straightforward, and approval is easy to obtain. While some excellent private lenders exist in the market, other lenders do take advantage of the supposed ease and simplicity of private lending applications. They will charge fees without the intention to settle the loan amount.

While it’s common for experts to charge fees to lend money or source a suitable loan for their clients, it’s not uncommon to hear stories of business owners who are left out of pocket. After spending thousands of dollars on fees by googling their way through ‘providers’, they are left with nothing to show other than a hole in their bottom line and a bad taste in their mouth.

How to access Australia’s best private lenders

Sourcing the right finance solutions for your business doesn’t need to be a guessing game; we have access to Australia’s leading private lenders. We deal direct with the private lending market to make sure that you have the right financial solutions for your business at interest rates that are right for you.

To engage with professionals with extensive experience and a proven track record at funding private loans, contact the team at darkhorsefinancial.com.au.

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