Non-bank lending is increasingly being considered earlier in the advice process, but better lender selection, stronger application narratives and realistic client expectations remain essential to securing approval
Non-bank lending is increasingly being considered earlier in the advice process, but better lender selection, stronger application narratives and realistic client expectations remain essential to securing approval.
As borrower circumstances grow more complex and specialist lenders broaden their offerings, non-banks are increasingly providing a primary route to funding rather than simply stepping in after a bank declines an application.
Daniel McGrath (pictured, right), CEO of XCEDA, says the sector now serves a much broader market than its historical reputation suggests. However, he believes some misconceptions persist, particularly around cost, speed and the type of borrower suited to specialist finance.
“Many non-bank lenders have developed highly sophisticated credit assessment processes and are focused on borrowers whose circumstances fall outside standard bank policy rather than outside prudent lending parameters.”
Another ‘stereotype’ is that non-bank lenders are significantly slower or more expensive. But McGrath says that while pricing can reflect increased complexity or risk, advisers are often surprised by the speed, flexibility and certainty of execution many non-bank lenders can provide.
“The market has matured considerably, and specialist lenders are increasingly viewed as an important part of the lending ecosystem rather than an alternative on the fringe.”
Rather than representing poor-quality lending, non-bank finance can provide a more appropriate assessment framework for self-employed clients, property investors, borrowers with recent credit events and those with complex income or ownership structures.
Identifying lender fit from the outset
Whether a non-bank should be approached before or after a bank depends on the application. John Moody (pictured, top of page), Chief Financial Officer at Basecorp, says advisers are right to pursue lower-cost bank funding when it is genuinely available and appropriate, but many are also becoming adept at recognising when a transaction is unlikely to fit bank appetite.
“This is particularly the case where the borrower, or security, has characteristics that clearly set them outside bank funding appetite. In these cases, the non-bank option becomes the primary funding solution rather than a fallback option.”
Those characteristics could include credit impairment, difficulty verifying self-employed income, bridging requirements, debt consolidation, residual stock funding, time-sensitive settlements, property trading or security-specific issues. The defining question is not necessarily who the borrower is, but whether their circumstances conflict with a bank’s policy or appetite.
McGrath says beginning with an assumption that bank finance is always preferable can create avoidable delays. By the time an application is declined, the client may have spent weeks pursuing an option that was never well matched to their circumstances.
“The most effective advisers assess lender fit at the beginning of the process. They consider the client's full circumstances, identify any policy issues or complexities, and determine whether a specialist lender might provide a more direct pathway to approval.
“Engaging non-bank lenders earlier doesn't mean bypassing banks unnecessarily. It simply means considering all suitable options upfront and matching clients with the lender most likely to meet their needs.”
This requires advisers to look beyond headline pricing and understand how different lenders assess income, credit history, servicing, property types and borrower structures.
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Structuring the application around the lender
Once an adviser has identified a possible non-bank route, selecting the right lender and product becomes critical. Specialist lenders are not interchangeable, and their priorities can change according to the loan’s purpose and term.
At Basecorp, Moody says short-term lending generally places greater emphasis on the security and exit strategy, while longer-term loans require closer attention to servicing over the life of the facility.
“At Basecorp, we’ve tried to build a broad credit policy so that we can assist advisers with a wide range of scenarios in the non-bank space. A one-stop shop if you like.
“What factors we need really are dependent on the product type and term of that loan. Short-term products will focus more on the security position and exit strategy – while longer-term products will focus more on the servicing position over the life of that loan. Borrower profile and a reasonable purpose sit across all products.
“Successful submissions generally arrive with a clear funding purpose, realistic assumptions, are secured appropriately in line with our LVR limits, and have a credible repayment story whether via exit or income.”
McGrath says advisers should understand a lender’s particular strengths before attempting to position a deal. The best result comes from matching the application to the lender, rather than trying to force every complex borrower through the same framework.
“The best outcomes usually occur when all the information is available and all the issues are out in the open. Advisers can then match the client’s circumstances to the lender’s strengths rather than attempting to fit every application into the same lending framework.
“Advisers who understand those nuances can position applications much more effectively and quicker.”
An upfront conversation with a business development manager or credit team can be particularly valuable. It allows the adviser to test the scenario, identify missing information and gain an early indication of likely terms before formally submitting the application.
“Advisers should not underestimate the value in picking up the phone and chatting to a lender. Specialist lenders are very good at workshopping deals and trying to upend a deal to find a solution,” adds McGrath.
READ MORE: Specialist lenders step up as borrower needs expand
Documents tell only part of the story
Documentation gaps can slow an application, but both Moody and McGrath emphasise that a pile of supporting documents is not a substitute for a clear explanation.
Moody says Basecorp takes a flexible approach to information requirements, with missing items generally treated as matters needed to formalise an approval or satisfy conditions rather than simply as adviser mistakes. However, a comprehensive diary note can substantially reduce the need for follow-up questions.
“Explaining what the borrower is trying to achieve, the funding required, relevant circumstances, source of income, security and exit strategy, and any risks together with mitigation helps us to assess efficiently within our usual 24-48 hour timeframes.”
The written narrative is especially important when an application contains a credit event, inconsistent income or an unusual transaction structure. It should explain what happened, why it happened, what has changed and why the proposed solution remains credible.
McGrath describes ‘incomplete storytelling’ as one of the most common weaknesses in non-bank applications. Financial statements, bank records and credit reports show the numbers, but they do not necessarily explain the circumstances behind them.
“A complex deal doesn’t become easier because difficult issues are omitted. In most cases, the opposite is true.”
Unexplained differences between the application and supporting documents can create doubt, while proactively addressing them allows the lender to assess the actual risk. McGrath says advisers should aim to answer likely credit questions before the assessor needs to ask, while also recognising the value of discussing a complex transaction directly with the lender.
“A strong written narrative allows the credit assessor to quickly understand the borrower's situation and focus on the factors that matter most. It also demonstrates that the adviser has thoroughly assessed the scenario before submission.”
Ensuring certainty before submission
High-performing advisers tend to treat specialist lending as a regular part of their capability rather than an occasional response to a difficult deal. They understand lender appetite, maintain strong industry relationships and prepare clients for what a non-bank solution may involve.
Moody says setting expectations around interest rates, fees and loan terms before an approval is returned helps ensure the eventual offer is understood and well received.
“We think this only increases the chances clients will proceed further through to settlement and a funding solution.”
McGrath similarly says advisers who communicate clearly from the outset achieve faster decisions, stronger conversion rates and fewer surprises. Preparation is central: complete the fact-find, identify complexity early, gather the evidence, discuss borderline scenarios and openly address any adverse information.
“The advisers achieving the best outcomes today are those who view non-bank lending not as an alternative after a decline, but as a legitimate and valuable option within the broader lending toolkit.”
For advisers, the key shift is from asking whether a client fits a bank to identifying which lender’s assessment approach best fits the client. When that decision is made early and supported by a complete, credible application, non-bank lending can deliver greater certainty for the adviser, the lender and, most importantly, the borrower.
