The growing legitimacy and persistent risk of private credit

Private lending in Australia has evolved from a murky corner of the finance world into a serious player.

For brokers, it is often the only viable route to take their customers down, but despite tighter enforcement and growing legitimacy, private lending doesn’t come without its risks.

In the world of mortgage broking, where reputation and customer relationships are the be all and end all, it pays to know where the sharks swim.

MPA went straight to the source to get a proper insight into what working with private lenders is like – and what red flags to look out for.

Too big to fail?

"It’s a space that’s become so big that it’s under the eye of AFCA (the Australian Financial Complaints Authority)," Tom Bracey, residential and commercial broker at top-tier brokerage Shore Financial told MPA, adding that those who don’t do the right thing “get caught out very quickly.”

Bracey acknowledged that in the past, there were lenders who operated with less-savoury intentions – charging large upfront fees and then disappearing, or engaging in “lend-to-own” tactics.

However, this kind of behaviour is less common nowadays thanks in part to tighter enforcement by AFCA and a more informed broker community.

“You can pretty much determine who's legit and who's not these days just by doing some simple DD (due diligence),” he said, pointing to basic things like Google, LinkedIn, and industry reputation.

Bracey underscored the importance of knowing the space and sticking to reputable lenders with strong track records. “These guys have done billions in lending – it’s not worth it for them to act unethically.”

That said, he has also encountered times where a private lender hasn’t been able to honour the deal.

“Fortunately if they haven't been able to honour the funding terms they originally proposed, they've refunded the application fee,” he said. “That’s why working with a proper legit private lender is good.”

On minimising risk, Bracey gave a simple tip: “Speak to a broker who knows development finance, that’s a start.” He stressed that having a broker that knows the space and knows which private lenders to and to not work with is essential.

“One of the key things that you'll find is these guys that say they've got the money and they don't have the money, they'll ask you for a massive upfront fee as a working fee.

“You typically avoid those because in many instances people do pay these things thinking that they’re going to get the money and then they just never hear from the lender again.”

It happens far less these days though, thanks to the above-mentioned increase in scrutiny of the sector.

Yet George Lyall, director of Millbrook Group, worries about “players in the market who lack a proven track record and may contribute to negative perceptions of the industry.” Millbrook manages around $400 million of private credit secured by Australian property.

“From a broker's perspective, it’s crucial to assess how long a lender has been active, their experience with construction lending, and their fee structure,” said Lyall.

Echoing Bracey, Lyall added that “large upfront fees or a lack of construction experience should raise immediate red flags.”

Speaking to other brokers, it is clear they share similar opinions of what constitutes a red flag.

Jon Gawley (pictured), managing director of Kanebridge Finance and winner of MPA’s Top Commercial Brokers 2025, told MPA: “A lot of these lenders charge a decent upfront fee, and some won’t refund it if the deal doesn’t proceed. The ones we work with are different – if they don’t fund the deal, they refund the fee. That tells me they’re putting their money where their mouth is.

“Some lenders say they have the capital, but they don’t – and they’ll look for excuses to pull out of a deal. We've had that happen, and once it does, we don’t go back. You learn fast which ones are legit.”

Yet there is blame to share. “There are also brokers who try to take shortcuts,” Gawley said. “We like to think we know our clients well and understand how to place deals appropriately.”

The curse of choice

The sheer volume of private lenders “is overwhelming,” Gawley said.

“There are probably 300 to 400 private lenders out there – there could be even more. It’s actually a bit scary how many there are. In comparison, you've got around 60 to 100 banks, credit unions, and other regulated funders,” he said.

Gawley mitigates risk by only working with a select list of high-profile, reputable names in private credit. These include large players like Payton, Msquared and Monarch.

“We've got a strong connection to a shortlist of private lenders we trust. We’ve done our research and built relationships with the right ones for our clients,” he said. “I reckon every week, I probably get five to ten new private funders flicking me emails.”

Read more: Not all private funders created equal

Determining who is legit “comes down to experience”, Gawley said. “There's a lot of brokers out there now which have decent experience, so you sort of know what is a deal, where it should go etc.

“On the occasion it doesn’t work out, we have to determine the reason why we won't ever use them again. You learn from the mistake. Some lenders say they have the capital, but they don’t – and they’ll look for excuses to pull out of a deal.”

As a group, Kanebridge Finance tends to arrange face-to-face meetings and site visits with private funders when possible. “That personal touch helps build trust,” said Gawley. “We've even opened a Brisbane office to ensure we have someone on the ground for interstate projects."

Yet even with the punishing DD rigmarole, private lenders are often simply the only real choice.

“The reason why people are going to privates is the banks are full of roadblocks. Pre-sales in this market don't work since the Building Commission has been there; it's very hard,” Gawley said.

“With private funders, you can get a yes on a deal much quicker as far as verification they’re sometimes worse than a bank is.”

Surprisingly, private lenders often do more rigorous file checks than banks, noted Gawley. “which in a way is a good thing – it means they’re serious about the deal and want to back it properly."

Customer perceptions

At the end of the day, the borrower has the last say on who they take out a loan with. But do they have anxieties around borrowing from private lenders, as opposed to household names like Commonwealth Bank and ANZ?

"Yes and no,” according to Gawley. “A lot of our clients are repeat business – people we’ve worked with for 15 to 20 years, or longer in some cases. That familiarity helps. Many of them are quite experienced and understand how much the lending landscape has shifted.

“Ten years ago, private funding could be 5% or more above a bank rate. These days, the difference is more like 3% to 4%. And when you factor in what private lenders are willing to do – like backing higher LVRs and accepting lower pre-sales – it can make a lot of sense.”

Time is money, after all, “and many of our clients get that. They’d rather pay a little more to get moving than sit around waiting,” he added.