Non-banks versus private lenders: Know what you're dealing with

MFAA, Pepper Money, LMG and Simplicity give the lowdown

Non-banks versus private lenders: Know what you're dealing with

A lot has been written in MPA about private lending lately, but it seems the swiftly growing sector is on the Mortgage and Finance Association of Australia (MFAA)’s radar too.

The industry body’s National Equipment and Commercial Finance Forum (ENCF) has voiced a rallying cry for brokers tapping private credit, warning them that the benefits also come with substantial risks and complexities.

“Brokers are leveraging private lending solutions to address specific client needs, such as non-conforming loans or funding gaps for property transactions,” said MFAA chief executive Anja Pannek.

“As traditional lenders pull back due to regulatory and economic pressures, demand for credit hasn’t gone away – and that’s where the flexibility of private lending is proving its value.”

However, the MFAA also warned that many private lenders operate under lighter regulatory frameworks. This has prompted the Australian Securities and Investments Commission (ASIC) to ramp up its scrutiny over the sector.

Read more: The growing legitimacy and persistent risk of private credit

While private credit comprises just 2.5% of overall business lending (per Reserve Bank of Australia data), it is growing faster than other forms of business, having grown just under 10% in 2024.

Clare George, mortgage aggregator LMG’s associate director commercial and ENCF Forum member, said that the sector's growth comes off the back of increasingly risk-averse banks.

“Following the GFC (Global Financial Crisis) and the Banking Royal Commission, banks became subject to stricter capital adequacy requirements and more conservative lending practices,” said George. “Private credit providers have stepped in, offering tailored loan structures, flexible repayment terms, and faster execution times.”

Understanding the differences

There is often confusion about the distinction between private and non-bank lending. 

Jean-Pierre Gortan (pictured), managing director of Simplicity Loans & Advisory and ENCF forum member, said: “Non-bank lenders are institutional in nature. They're regulated, have formal credit policies, and often resemble banks in their operations.

“Private lenders, on the other hand, can range from high-net-worth individuals to boutique funds. They are less regulated, more nimble and often priced for risk. That flexibility is an advantage, but it demands more caution.”

According to non-bank lender Pepper Money, further distinctions include:

Feature

Private Lender

Non-Bank Lender

Who they are

Individuals or small private groups

Licensed financial institutions (but not banks)

Examples

Wealthy individuals, SMSFs, private investors

Pepper Money, Liberty Financial, Resimac

Scale

Small to medium

Medium to large

Regulation

May not be formally regulated, especially if lending is occasional

Regulated by financial authorities (e.g., ASIC in Australia)

Licensing

May not require a credit license (depending on activity and structure)

Must hold an Australian Credit Licence (ACL)

Consumer Protections

Limited or none

Must comply with responsible lending laws and consumer protections

Capital Source

Personal or pooled private funds

Institutional capital, securitisation, wholesale funding

Loan Volume

Typically lower

Can fund large volumes of loans

Loan Types

Short-term, bridging, asset-backed, niche loans

Home loans, personal loans, car loans, asset finance, commercial real estate, SMSF

Flexibility

Case-by-case terms

Structured products with flexibility in terms/features of the loan

Speed

Very fast (can approve in hours)

Fast, but with more formal processes

Interest Rates

Higher (to offset risk)

Competitive, generally only slightly higher than banks due to cost of funds

Risk Profile

Higher risk tolerance

Moderate risk tolerance

Borrower Type

Often unconventional

Near-prime, self-employed, or non-standard borrowers, credit impaired (specialist)

Best for

Unique, urgent, or high-risk scenarios

Borrowers who don’t qualify for banks but want structured products and options close to a bank solution

Main Advantage

Speed and flexibility

Broader product range and regulatory protection

Main Disadvantage

Higher cost, less oversight

Less flexible than private lenders

 

Private lenders don’t always hold an Australian Credit Licence (ACL), George said. As such, they may not be bound by the National Consumer Credit Protection (NCCP) Act.

This makes due diligence extremely important, said experts. But what should brokers look out for?

According to the ENCF, the following checks should be made:

  • Vet the lender thoroughly – investigate their track record, dispute processes (e.g. AFCA membership), and funding stability
  • Check documentation carefully – watch for hidden fees, one-sided clauses, and rollover conditions
  • Clarify the total cost – consider not just interest, but all associated fees and charges
  • Ensure client understanding – explain the risks and lack of consumer protections and get written confirmation
  • Document everything – for a residential loan, how the loan meets the client’s needs under Best Interests Duty
  • Plan for an exit strategy – evaluate the client’s ability to repay or refinance.
  • Consult your aggregator – if a lender is off-panel, apply extra scrutiny and seek support

Education is key. Brokers must go beyond the surface, ask the right questions, and never assume a loan structured as business credit removes consumer Protections,” George said.

“ASIC's focus is increasing, and brokers should expect more oversight. The best way to prepare is to hold yourself to the highest standard.”