What Is Private Credit and How Does It Work in Australia?

Private credit is one of the fastest-growing segments of the Australian finance market — and one of the least understood by most brokers. Knowing when and how to use private credit lenders separates brokers who can structure complex deals from those who simply send applications to the Big Four and hope for the best.

What Is Private Credit?

Private credit refers to lending provided by non-bank, non-regulated entities — private debt funds, family offices, mortgage trusts, and specialist private lenders. These entities are not regulated by APRA, are funded by private capital (typically from high-net-worth investors, superannuation funds, or institutional investors), and operate outside the constraints that govern bank lending.

The defining characteristics of private credit in Australia:

• Higher interest rates than bank financing — typically 8–20%+ per annum depending on risk
• More flexible lending criteria — less rigid income and LVR requirements
• Faster approval and settlement — days rather than weeks
• Shorter loan terms — typically 6–36 months
• Focused on asset value and exit strategy rather than pure income assessment
• Available for deals that mainstream lenders cannot or will not fund

When Is Private Credit Used?

Private credit fills the gap when banks say no — or when the borrower's timeline does not accommodate a bank's approval process. Common use cases:

Bridging finance

A borrower needs to settle a new property purchase before their existing property sells. Bank bridging products exist but are slow and have strict criteria. Private credit lenders can settle in days at higher rates, allowing the borrower to complete the purchase and repay when the existing property settles.

Development finance at higher LTC

A property developer needs financing that exceeds what a bank will fund — perhaps 75–80% LTC where a bank caps at 65%. A private credit lender can fill the gap at a higher rate, often in a mezzanine structure alongside the bank's senior debt.

Credit-impaired borrowers

Borrowers with credit impairments — defaults, judgments, or Part IX arrangements — who cannot access bank or non-bank prime lending can sometimes access private credit where the asset security is strong and the exit strategy is clear.

Non-standard security

Properties in remote locations, unusual construction types, or commercial property that does not fit standard bank policy can be funded through private credit where the lender takes a view on the specific asset rather than applying a blanket policy.

Mezzanine Finance — Private Credit in Development

Mezzanine finance is a specific type of private credit used in property development — it sits between the senior debt (the bank's first mortgage) and the developer's equity. In a typical development finance structure:

• Senior debt (bank or non-bank): 60–65% of project cost, first mortgage security, lowest rate
• Mezzanine finance (private lender): 10–20% of project cost, second ranking security, higher rate (typically 15–25%)
• Developer equity: 15–30% of project cost, no security, all the upside

The mezzanine lender takes second ranking security — meaning they are repaid after the senior lender if the development is sold. This higher risk is reflected in the higher rate. The developer benefits by reducing the amount of equity they need to contribute while the bank maintains its first ranking position.

The Broker's Role in Private Credit

For brokers working in commercial and development finance, private credit knowledge is table stakes. Here is what is required to participate in this market:

Understanding the capital stack

Every development or complex commercial deal has a capital structure — senior debt, mezzanine, equity. A broker who understands how to structure the full capital stack can add far more value than one who only knows how to lodge a standard commercial loan application.

Knowing the private lender landscape

The Australian private credit market includes mortgage trusts, private debt funds, family offices, and specialist lenders. Each has different criteria, rates, and LVR tolerances. Building relationships with 3–5 private lenders gives a broker access to solutions for deals that mainstream lenders cannot accommodate.

Exit strategy analysis

Private lenders focus heavily on exit strategy — how and when the loan will be repaid. Brokers need to articulate a clear exit in every private credit application: property sale, refinance to a mainstream lender once conditions are met, or another specific event.