Private Credit vs Bank Lending in Australia
Private credit has grown into a A$234.5b market by doing what banks often cannot: moving faster, structuring around the asset, and writing loans outside standard credit policy.
Two channels, one borrower need
Australian businesses and property developers have historically relied on the major banks for debt. Private credit — loans originated by non-bank fund managers using investor capital — has emerged as a parallel channel. Australian private credit reached A$234.5b in 2025, compounding at 21.0% a year since 2015, against 5.5% annual growth in bank lending over the same period.
The two channels are not simply substitutes. Banks fund loans from deposits and operate under APRA's prudential framework, which shapes what they can write and how quickly. Private credit funds answer to their investors and investment mandates, which gives them different constraints — and different freedoms.
Speed and certainty of execution
The most frequently cited reason borrowers approach private credit is speed. A fund with capital in hand and a small credit committee can often issue terms in weeks, where a bank credit process may take months, particularly for transactions that sit outside standard policy — land banks, construction with complex presale profiles, or corporate borrowers with lumpy cash flow.
Certainty matters as much as speed. A borrower settling a site acquisition on a fixed date may accept a higher interest rate in exchange for a lender that can commit and settle on time.
Structure: covenants, amortisation and security
Bank loans tend to be standardised: preset leverage limits, regular amortisation, and covenant packages drawn from bank policy. Private credit facilities are typically bespoke. A manager may structure interest-only periods through construction, allow capitalised interest, take security over a broader pool of assets, or size a facility against the completed value of a project rather than its current value.
This flexibility is not free. Private credit pricing generally sits above bank pricing, reflecting the illiquidity investors accept and the complexity of the loans written. Borrowers should compare total cost — establishment fees, line fees, default interest and exit fees — not just the headline margin.
Where each channel typically wins
Banks remain the natural home for vanilla lending: stabilised assets, strong borrowers, simple structures, and borrowers who value the lowest available cost of debt. Private credit tends to compete where the transaction is complex, time-critical, or in sectors banks have stepped back from — notably parts of commercial real estate and mid-market corporate lending.
Many borrowers now run both channels in parallel: a bank facility for the core balance sheet and private credit for a specific project, acquisition or bridging requirement.
Questions borrowers should ask a private lender
How is the fund capitalised, and is the capital committed? Who approves the loan and how long does credit approval genuinely take? What are all the fees, including exit and default charges? What reporting and covenants will apply during the loan? And what happens if the project timeline slips — how has the manager behaved through previous workouts?
General Advice Warning: This explainer is factual and general in nature only. It does not constitute financial, investment, or legal advice, and has been prepared without taking into account the objectives, financial situation, or needs of any person. Obtain independent professional advice before making any financial decision.
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