Private Lending: Fact or Fiction?

Private Lending: Fact or Fiction?

We were there at the beginning of the commercial Private Lending industry in Australia. No, we weren’t first, but we were one of the first few companies who brought private lending to the open market and introduced the concept that alternative funding solutions had their place in the Australian business landscape.

Working in private lending is never dull. There are, like any business experiences, interesting people, challenging scenarios, and no two days in a row that are the same.

Every now and then we’ll get a question from a client or a broker that gives us a bit of a giggle. The perception of private lending in Australia, while changing (and changing particularly rapidly through COVID-19), still remains intriguing for many of our clients who have either not heard of private lending, or who have heard stories from people who’ve heard stories from people who’ve heard stories from people…….*ahem*.

So today we thought we’d share some of the more interesting comments and questions we get, along with some of the more generic ones – see if you can spot the difference!

Fiction 1. Private lending is risky.

Fact: ALL lending is risky, and to all parties. Taking out any loan is a risk – what if you lose your job and can’t pay your mortgage? What if there is a decline in property prices and your debt is now greater than the value of your property? What if you lock in your interest rate for 5 years and then the rates fall to an all time low? Fact is, it’s risky for both sides of the transaction. The same issues that the borrower is worried about, also impact the lender. And that doesn’t matter whether the lender is a traditional bank, a private lender, or other.

Fiction 2. All the private lending money comes from overseas.

Fact: We can’t speak for other private lenders brokers, but IBN is 100% Australian owned and operated, from right here on Queensland’s beautiful Sunshine Coast. We only work with Australian based lenders, many of them are regular Aussie Mum’s & Dads who owned their own business, worked hard and have now retired.

Fiction 3. Non-bank borrowers can’t access traditional funding.

Fact: Errrrm. No. People use private lending for all sorts of reasons.

  • They may have a short settlement time frame to meet and their bank can’t meet it.
    • Private lending solves that problem.
  • They may have the opportunity to secure 2020 pricing for their 2021 stock purchase and their bank won’t fund it so far in advance.
    • Private lending solves that problem.
  • They want to buy out a business partner, but their bank wants to see current financials.
    • Private lending solves that problem.
  • If you want to see a few more scenarios, check out this post.
  • If you aren’t sure whether private lending is the right option for your business, give us a call to talk it through – 1300 668 551 – nothing ventured, nothing gained.

Fiction 4. Non-bank finance is a last resort.

Fact: Refer to Fact 3 above. For some borrowers it will be a last resort, they will have exhausted every other option and private lending is all they have left. Within our business, that’s maybe 3% of borrowers. The other 97% are business owners who need to move quickly on an opportunity and understand that their bank won’t be able to assist them in a timely fashion.

Fiction 5. The bikies.

Fact. This one gave me a good laugh. We are all reasonably conservative, law-abiding ex-bankers who moved on from banking bureaucracy in search of a smarter way to fund small and medium businesses. The only leather in our world is our belts and shoes. Pretty exciting, huh?

More a statement… Non-bank lending is more expensive.

Fact: Yep, it is. This is a risk vs reward business. A bank can offer lower rates because their risk is spread over an entire book of loans and associated securities. A borrower defaulting in a bank scenario means very little to the overall viability of the bank and its lending book.

Private lending is one on one (or a few on one in the case of a syndicated loan). For 99.9% of our clients, they have one lender secured by one property. All the lenders eggs are in one basket.

Yes, it’s more expensive.

Fiction 7. Private lenders are loan sharks

Fact: Private lenders are experienced business operators, who take a hands-on commercial approach to their investment activities. They assess the merits of the proposal stand-alone, and work with the borrower to achieve the desired funding outcome. Working with a private lenders broker like IBN gives you access to a huge network of experienced and successful business owners and operators, who understand what you are going through and have the means to assist.

Fiction 8. Non-bank loans are for people with poor credit history

Fact: Non-bank loans are for anybody with a viable business need and who have real property to secure the transaction. Simple.

We hope that answered some questions that you might have had about private lending. You are welcome to continue the conversation with us on LinkedIn or give us a call to chat through your scenario – 1300 668 551