Private Funding in Australia - Unravelling the World of Private Lenders
Welcome to the world of private funding in
Australia, where traditional banks take a backseat and alternative lending
options steal the spotlight. In this article, we unravel the mystery of private
lenders and shed light on the growing trend that is reshaping the finance
landscape.
Private funding offers a viable solution for
businesses in need of quick and flexible financing. But how exactly does it
work? Who are these private lenders, and what sets them apart from traditional
financial institutions?
Speaking with Ray Ethell Managing Director of Non Conforming Loans Pty
Ltd and his General Manager Sasha Anitei we delved into the world of Private
Lending. We explore the benefits of turning to private lenders, such as faster
loan approvals, personalized solutions, and an increased likelihood of approval
for those in Business.
Join us on as we uncover the secrets of
private funding in Australia and discover how this emerging sector is
revolutionizing the way individuals and businesses secure the financial support
they need.
Understanding the growth in private credit in Australia
Private credit stood at
around $188 billion in Australia last year and has been growing at 18% each
year according to recent projections. BlackRock
research puts the global private credit market at around US$1.6 trillion over
the same period.
The rise of private lending in Australia can
be attributed to several factors, including the tightening of lending standards
by banks and higher capital requirements demanded by APRA (Australia’s
Prudential Supervisor),” Ray Ethell said, observing
it is “unlikely” there will be changes in this behaviour that could see this trend
reversed.
“The Australian lending
market will continue to move towards private credit providers to meet broader
financing demands, while banks move towards consumer home loan financing and
lending for small and medium-sized businesses, said Sasha Anitei from Non
Conforming Loans”
Who are Australia’s Private Lenders?
Australia has several
hundred Private Lenders who provide funding from a
diverse pool of funds ranging from Institutional Investors, Superannuation
Funds, Mortgage Funds and Private Individuals. They are driven by the
potential for higher returns on their investments, as private lending typically
offers higher interest rates compared to traditional banking products.
Unlike banks, which are heavily regulated and
have strict lending criteria, private lenders operate with more flexibility and
often cater to business borrowers
who may not qualify for traditional bank loans.
Benefits of private funding
One of the primary benefits of private funding
in Australia is the speed and flexibility it offers. Unlike the lengthy
approval processes often associated with bank loans, private lenders can
typically provide funding much more quickly, sometimes within a matter of days
or even hours. This is particularly appealing to borrowers who need to act on
time-sensitive business opportunities or who are facing urgent financial needs.
Another key advantage of private funding is
the personalized approach that many private lenders take. Rather than relying
solely on credit scores and rigid lending criteria, private lenders often take
the time to understand the unique circumstances and goals of each borrower.
This allows them to tailor their financing solutions to the specific needs of
the individual or business, whether that means offering more flexible repayment
terms, higher loan amounts, or more lenient credit requirements.
Private funding vs. traditional financing options
While private funding offers a range of
benefits, it is important to understand how it differs from traditional
financing options, such as bank loans. One of the key distinctions is the cost
of borrowing, as private lenders typically charge higher interest rates than
banks. Other factors are that
private funds are generally only lent on non-coded loans that do not fall under the same regulatory
framework as code loans.
While code loans adhere to
regulatory requirements set by ASIC, non-code loans provide more flexibility.
In most cases, people who acquire non-coded loans are business owners who
require short term, immediate funding to “bridge” a shortfall for urgent
business opportunities or developers to work on specific projects.
This higher cost of borrowing is often
justified by the increased flexibility and speed of private funding, as well as
the willingness of private lenders to take on borrowers who may not qualify for
traditional bank loans. However, it is crucial for borrowers to carefully
consider the long-term implications of these higher interest rates and to
ensure that the benefits of private funding outweigh the additional costs.
How to find private lenders in Australia
Finding the right private lender in Australia
can be a daunting task, as the market is diverse and can be difficult to
navigate. However, there are several strategies that borrowers can employ to
identify and connect with reputable private lenders.
One of the most effective ways to find private
lenders is to work with a specialised broker such as Non Conforming Loans or an
experienced Mortgage Broker who has extensive experience in the private lending
market. These professionals can leverage their industry connections and
knowledge to match borrowers with the most suitable private lenders based on
their specific needs and financial profiles.
Another option is to search online for private
lenders that operate in the Australian market. Many private lending companies
and individuals have an online presence, often with detailed information about
their lending products, eligibility criteria, and application processes.
Borrowers can use search engines and industry directories to identify potential
private lenders and then thoroughly research their reputations and track
records.
It is also worth exploring personal and
professional networks, as word-of-mouth referrals can be a valuable source of
information about reputable private lenders. Borrowers may be able to connect
with private lenders through their business contacts, industry associations, or
even personal connections within their community.
Criteria for qualifying for private funding
While the criteria for qualifying for private
funding in Australia can vary widely depending on the lender, there are some
common factors that are typically considered. Understanding these criteria can
help borrowers prepare and improve their chances of securing private financing.
One of the primary factors that private
lenders evaluate is the borrower's credit history and financial stability.
While private lenders may be more lenient than traditional banks, they still
want to see a track record of responsible financial management and the ability
to repay the loan. Borrowers with poor credit scores or a history of late
payments may still be able to qualify, but they may face higher interest rates
or additional requirements.
Another important consideration for private lenders is the purpose of the loan. Private funding is often used for specific
business or investment purposes, such as purchasing commercial property,
financing a business expansion, or funding a real estate development project.
Private lenders will want to see a well-articulated and compelling business
plan or investment strategy that demonstrates the potential for a successful
return on their investment and a valid exit strategy to repay the loan.
The value, location and quality of the
collateral or security offered by the borrower is also a critical factor in the
private lending decision-making process. Private lenders may require borrowers
to pledge assets, such as real estate, equipment, or other valuable items, as
collateral to secure the loan. The more valuable and liquid the collateral, the
more likely the borrower is to be approved for private funding.
Common misconceptions about private funding
Despite the growing popularity of private
funding in Australia, there are still several common misconceptions that can
deter borrowers from exploring this financing option.
One of the most prevalent misconceptions is
that private funding is only available to high-net-worth individuals or large
corporations. In reality, private lenders cater to a wide range of borrowers,
including small businesses, entrepreneurs, and commercial property investors.
As long as the borrower can demonstrate a viable plan and the ability to repay
the loan, they may be able to secure private funding, regardless of their size
or net worth.
Finally, some borrowers may believe that
private funding is prohibitively expensive due to the higher interest rates
charged by private lenders. While it's true that private funding can be more
costly than bank loans, the increased flexibility, speed, and accessibility of
private financing can often offset the higher costs, particularly for borrowers
who may not qualify for traditional bank financing.
Conclusion: Is private funding the right choice for your business?
As you've seen throughout this article,
private funding in Australia offers a range of benefits for businesses seeking
alternative financing solutions. From the speed and flexibility of the lending
process to the increased accessibility for borrowers with less-than-perfect
credit, private lenders can provide a valuable lifeline for those in need of
capital.
Ultimately, the decision to pursue private
funding will depend on the unique needs and circumstances of your business or
personal financial situation. By thoroughly researching the private lending
landscape, understanding the criteria for qualifying, and working with
reputable lenders, you can determine whether private funding is the right choice for you.
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