Why non-bank development lending has grown, how it works and what developers need to understand
Introduction
Private credit has moved from the margins of Australian property development finance into the mainstream.
For many years, developers seeking construction funding generally approached a major bank or another authorised deposit-taking institution. Non-bank finance existed, but it was often treated as a fallback option for transactions that could not satisfy traditional lending policy.
That distinction has changed. Private credit is now used by experienced developers, institutional sponsors, family offices and smaller development groups for reasons that extend well beyond an inability to obtain bank finance. Developers may choose private credit to achieve higher leverage, settle an acquisition quickly, commence construction with fewer presales, fund a specialised asset or obtain a facility designed around the project rather than a standard bank policy.
The growth of private credit has increased the amount and variety of capital available to Australian borrowers. It has also attracted greater regulatory attention. ASIC estimated the Australian private credit sector at around $200 billion in September 2025 and has since increased its focus on governance, valuation, disclosure and conflicts within private credit funds. The Reserve Bank of Australia has similarly noted that non-bank lenders and private credit firms have increased the availability of credit for business borrowers, while observing that lending outside the banking system can carry different risk and transparency characteristics.
For developers, the opportunity is significant, but private credit should not be viewed as easy or unrestricted money. The higher degree of flexibility is normally accompanied by higher pricing, detailed security, stronger lender controls and a need for a clear repayment strategy.
This guide explains why private credit has grown in Australian property development, how private lenders assess projects, where the funding can add value and which risks developers should understand before accepting a facility.
What is private credit?
Private credit is lending provided outside public bond markets and traditional bank lending channels.
The capital may be supplied by managed funds, private debt funds, family offices, institutional investors, superannuation-related investors, investment managers or specialist finance companies. The loans are privately negotiated rather than traded on a public exchange.
In property development, private credit can include senior land loans, construction facilities, stretch senior debt, mezzanine finance, residual stock loans, bridging facilities and other structured transactions.
Some private lenders operate conservatively and provide first-ranking senior loans at leverage close to bank levels. Others specialise in higher-leverage or more complex lending. It is therefore inaccurate to treat all private credit as one product.
The common feature is that the lender can often make a project-specific credit decision. Instead of relying entirely on a rigid policy matrix, it can assess the security, sponsor, project margin, risk controls and expected return as a complete transaction.
The facility is usually funded by investor capital seeking an agreed return. Pricing must therefore compensate the fund for its cost of capital, management expenses, risk, illiquidity and potential loss.
“Private credit buys certainty and speed; a bank buys you a lower rate.”
— The Australian Property Development Handbook
Why private credit has grown
Private credit has grown because both borrowers and investors have reasons to use it.
Property developers increasingly require funding structures that can respond to shorter acquisition time frames, higher land costs, complex planning pathways, changing presale conditions and specialist asset classes. Traditional bank finance remains important, but a standard senior facility may not always provide enough leverage or flexibility for the transaction.
At the same time, investors have sought income-producing alternatives to public fixed-income markets. Privately negotiated loans can offer higher returns, floating-rate income, property security and contractual protections.
The growth is also part of a broader shift in capital markets. ASIC's work on Australia's public and private markets has highlighted the increasing significance of private capital and private credit. Private markets have become more important as companies and projects remain privately funded for longer.
Australian property is particularly suited to private credit because each project is different. Land, planning, construction, presales, leases and sponsor experience can be assessed and priced individually.
This does not mean bank lending has disappeared. The two markets increasingly operate alongside each other. Private lenders may fund the early or more complex stage of a project, while a bank later provides lower-cost construction or investment debt once risk has reduced.
The gap between bank policy and commercially viable projects
One reason private credit has expanded is that a project can be commercially viable while falling outside bank policy.
A bank may have limits relating to presales, asset type, location, leverage, developer experience, loan size or concentration. If the transaction falls outside those limits, the credit team may have limited capacity to proceed, even where the project has a strong margin and substantial security.
Private credit lenders can often examine whether the risk can be mitigated through the structure. A lack of presales may be addressed by lower leverage, stronger market evidence and sponsor liquidity. A short settlement may be managed through rapid due diligence and a bridging facility. A specialist asset may be acceptable where the operator, lease and valuation are strong.
This approach does not make the project risk free. It means the lender is willing to price and control the risk rather than decline it solely because it does not fit a standard category.
The resulting facility may include a higher interest rate, additional fees, tighter covenants, stronger guarantees or a more conservative exit requirement.
Private credit therefore fills a genuine market gap between conventional bank lending and equity capital.
How private credit differs from bank finance
The most visible difference is usually price, but the structural differences are more important.
Banks generally have a lower cost of funds and can offer lower interest rates. They also operate within detailed prudential, capital and internal-policy frameworks.
Private lenders generally have a higher cost of capital but more flexibility to tailor the loan. Decision-makers may be closer to the transaction, and the approval process may be shorter.
Banks often prefer lower leverage, stronger presales and established sponsors. Private lenders may consider higher leverage, reduced presales, urgent settlements and more complex ownership or security structures.
The documentation can also differ. A private facility may include minimum interest, MOIC floors, exit fees, extension fees, cash sweeps, tighter information requirements or greater control over project decisions.
The distinction should not be reduced to expensive versus cheap debt. Developers are comparing cost, leverage, speed, certainty, flexibility and control at the same time.
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The role of private credit in the development capital stack
Private credit can sit at several levels of the capital stack.
A conservative senior private lender may provide the entire first-ranking construction facility. The structure resembles bank debt but may be more flexible in relation to presales, timing or asset type.
A stretch senior lender provides a single facility at higher leverage. The upper portion of the loan carries more risk and is priced accordingly.
A mezzanine lender sits behind the senior lender and ahead of equity. This layer can reduce the developer's cash contribution, but it requires an intercreditor agreement and usually carries a significantly higher return.
Private credit can also fund land acquisition, pre-development work, residual stock or the transition between construction and longer-term investment debt.
The developer should understand exactly where the lender sits, which security it holds, how it is repaid and what happens if the project underperforms.
A capital stack with multiple lenders can achieve greater leverage, but complexity increases. Enforcement rights, payment priority, cure rights and consent requirements must be documented clearly.
Why developers choose private credit
Developers use private credit for several practical reasons.
The first is speed. A private lender may be able to assess and settle a transaction more quickly than a bank, particularly where the decision-makers are directly involved.
The second is leverage. Stretch senior or mezzanine funding can reduce the amount of cash equity required.
The third is presale flexibility. Some private lenders will fund projects with lower presales where the location, valuation, margin and sponsor support are strong.
The fourth is asset flexibility. Private credit funds may be comfortable with subdivisions, residual stock, childcare centres, service stations, industrial estates, mixed-use projects and other assets that require specialist analysis.
The fifth is structural flexibility. A private lender may accommodate landowner joint ventures, complex entities, delayed settlements, staged facilities or unusual repayment arrangements.
These benefits have economic value. A faster facility may preserve a land deposit or fixed building price. Higher leverage may allow the developer to retain capital for another project. Reduced presale requirements may avoid discounting stock solely to satisfy a lender condition.
The value must be compared with the additional cost and risk of the facility.
Speed and execution certainty
Speed is frequently advertised as a major advantage of private credit, but developers should distinguish between a fast term sheet and a certain settlement.
A lender can issue indicative terms quickly while still requiring valuation, quantity-surveyor review, legal due diligence, environmental reports, credit approval and evidence of equity.
The developer should ask who has approved the term sheet, whether capital is committed and which conditions remain outstanding.
Execution certainty is especially important where the developer faces a land settlement, refinance deadline, builder commencement date or expiring approval.
A private lender with available capital, relevant asset experience and direct approval authority may provide greater certainty than a lender offering a lower rate but requiring an extended process.
However, poor preparation can delay any lender. A complete application remains essential, regardless of the funding source.
“The cheapest rate is rarely the cheapest capital.”
— The Australian Property Development Handbook
Higher leverage and capital efficiency
Higher leverage is one of the strongest attractions of private credit.
A bank might offer a conservative senior facility requiring a substantial developer contribution. A private lender may provide stretch senior or combine senior and mezzanine debt to reduce the equity requirement.
This can improve the developer's return on equity and preserve cash for other projects.
The benefit should be assessed in total dollars. Additional debt increases interest, fees and the amount that must be repaid from sales or refinance.
Higher leverage also leaves a smaller buffer against cost increases, lower values and delays. The project can move from profitable to stressed more quickly.
Experienced developers often use higher leverage selectively. They may accept the additional cost where preserved capital has a valuable alternative use, but use lower-cost senior debt where equity is readily available.
Capital efficiency is valuable only when the project remains resilient.
Private credit and reduced presale requirements
Private lenders may accept lower presales than a bank, particularly for townhouse, subdivision and boutique apartment projects.
The lender will compensate by examining the market, leverage, sponsor liquidity, construction contract and exit strategy closely.
Reduced presales can help developers avoid discounting early stock or delaying construction while a sales threshold is achieved.
However, the sales risk has not disappeared. More completed stock may remain unsold, and the facility may need to be extended if settlements are slower than expected.
The lender may also require higher release prices, cash sweeps or restrictions on distributions until debt is reduced.
A reduced-presale facility should therefore be modelled under a slower-sales scenario, not only the developer's base case.
Specialist and complex property projects
Private credit has become particularly important for specialist developments.
Childcare centres require analysis of the operator, lease, demographics, licensing and completed investment value.
Service stations involve environmental risk, specialist infrastructure, access and tenant covenant.
Industrial estates may be speculative, preleased or sold to owner-occupiers. Mixed-use projects combine several income and valuation methods.
Land subdivisions involve civil works, staged title creation, release prices and progressive settlements.
A specialist private lender may be able to understand these risks and structure the facility accordingly.
The developer should still select a lender with relevant experience. Flexibility without asset knowledge can create problems during construction and at exit.
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Private credit generally costs more than bank debt.
The total cost can include interest, establishment fees, line fees, legal and due-diligence costs, monitoring fees, extension fees and exit fees.
A minimum interest period or MOIC floor may require the developer to pay a minimum lender return even if the loan is repaid early.
The interest may be charged on drawn funds, the entire committed facility or a combination of drawn and undrawn amounts.
Default and extension pricing can be materially higher than the initial rate.
Developers should obtain a month-by-month funding model showing the expected dollar cost. The same model should be run with a construction or sales delay.
The appropriate question is not whether private credit is expensive. It is whether the economic value of the additional leverage, speed and flexibility exceeds the incremental cost.
MOIC floors and minimum returns
A MOIC floor is increasingly relevant in private development finance.
MOIC means Multiple on Invested Capital. A lender may require a minimum return expressed as a multiple of the capital advanced or committed.
For example, a 1.15x minimum MOIC means the lender expects to receive at least $1.15 for every $1.00 of relevant invested capital, depending on the facility definition.
If the project repays quickly, ordinary interest and fees may not reach the minimum amount. The developer may then pay an additional amount at discharge.
This is why developers are warned to watch the floor on short projects. A facility with a seemingly reasonable annual rate can produce a high effective annualised cost if it repays well before the assumed term.
The term sheet should explain the MOIC calculation, which fees count toward the floor, whether the measure applies to committed or drawn capital and how partial repayments are treated.
Security, guarantees and lender control
Private credit is usually secured by substantial property and corporate security.
The lender may take a first-ranking mortgage, general security over the borrower and guarantors, share security, project account control and assignment of key contracts.
Directors, shareholders or related entities may provide guarantees.
Higher-leverage loans may involve tighter covenants and stronger control rights because the lender has a smaller equity buffer.
The facility may restrict distributions, additional debt, project changes, sales below approved prices and changes to the builder or consultant team.
The lender may also require frequent reporting, quantity-surveyor monitoring and approval of material variations.
Developers should assess the security and control package as carefully as the interest rate. A flexible approval process does not necessarily mean a lightly controlled facility after settlement.
“Match the lender to the deal, not the deal to the lender.”
— The Australian Property Development Handbook
Regulatory attention and market standards
The growth of private credit has attracted increased regulatory scrutiny in Australia.
ASIC's 2025 work on private credit examined governance, valuation, conflicts, disclosure and liquidity practices. Its surveillance identified differences between stronger and weaker industry practices, and ASIC has continued to emphasise valuation and reporting standards.
APRA primarily supervises banks and other prudentially regulated entities rather than most private credit funds. However, APRA and the Reserve Bank monitor developments in non-bank finance because rapid growth, leverage and interconnectedness can affect the broader financial system.
The Reserve Bank's March 2026 Financial Stability Review noted that non-bank lenders and private credit firms have increased credit availability, while the sector's relatively small size limits the likely systemic effect of stress compared with the banking system.
For borrowers, regulation does not replace due diligence on the lender. Developers should understand who provides the capital, whether funds are committed, how valuations are managed and whether the lender has a record of completing similar transactions.
A private credit facility is a commercial contract. The sophistication and reliability of the counterparty matter.
Risks for developers
The first risk is total cost. High interest, fees and minimum returns can materially reduce project profit.
The second is refinancing risk. A short private facility may assume that the project will later qualify for bank finance or sell within a specific time. If that exit is delayed, extension cost can be substantial.
The third is valuation risk. A lower valuation can increase equity requirements or reduce the amount available for refinance.
The fourth is control risk. Covenants and lender consents can restrict the developer's ability to change the project or distribute cash.
The fifth is enforcement risk. Higher leverage means the lender's security position can deteriorate quickly if cost or value moves adversely.
The sixth is lender funding risk. The developer should confirm that the lender has the capital and authority to fund the entire facility.
These risks do not make private credit inappropriate. They make facility selection and documentation critical.
Risks for private credit investors and lenders
Private credit investors are exposed to borrower default, valuation error, construction risk, liquidity risk and concentration.
Property development loans can be illiquid. A lender cannot always sell or exit the facility easily if market conditions change.
Valuations may be uncertain, particularly for unfinished or specialist property.
High leverage increases potential loss if construction cannot be completed or the property must be sold under pressure.
Fund governance and conflict management also matter where the same manager originates, values, extends and restructures loans.
These investor risks explain why private lenders conduct detailed due diligence and why the facilities can contain strong protections.
Developers benefit from understanding the lender's perspective. The more clearly the risk is identified and controlled, the more likely the lender is to provide workable terms.
These principles come from our free guide.
Download the handbook →Worked example: bank debt versus private credit
Assume a townhouse development has total development cost of $28 million and expected gross realisation value of $37 million.
A bank offers a $19 million senior facility. The developer must contribute $9 million. Pricing is relatively low, but the bank requires a higher level of presales and will not settle until the final building contract and all conditions are complete.
A private credit lender offers $22.5 million. The developer contributes $5.5 million. The lender accepts fewer presales and can settle earlier, but the facility carries higher interest, establishment and exit costs.
The private facility preserves $3.5 million of equity. It also allows construction to commence under the current builder price.
If the developer has no productive use for the preserved cash and can satisfy the bank conditions without delay, the bank structure is likely to produce the stronger project profit.
If the bank process would delay construction, increase the building price or cause the land contract to fail, the private facility may create greater value despite its cost.
The correct comparison depends on the consequences of each funding path, not the nominal rate alone.
Private credit as transitional capital
Private credit is often used as transitional capital.
A developer may use it to acquire land, obtain approvals, complete early works or stabilise a completed asset.
Once the project has become less risky, the developer may refinance into lower-cost bank or investment debt.
This can be an efficient strategy where the milestones are clear and achievable.
The risk is that the expected refinance does not occur. Presales may be delayed, the valuation may fall, the lease may not commence or bank policy may change.
The original private facility should therefore provide enough time and extension flexibility to reach the exit under a conservative program.
A bridge is only effective when the destination is realistic.
When private credit is most suitable
Private credit may be suitable where the project is profitable and well controlled but requires flexibility beyond normal bank policy.
Examples include urgent acquisitions, reduced-presale construction, higher-leverage developments, residual stock, specialised assets and projects with complex ownership arrangements.
It can also suit experienced developers who place a high value on preserving equity or moving quickly.
Private credit is less suitable where the project has a thin margin, uncertain costs, weak sponsor liquidity or no credible exit.
Expensive debt cannot repair an uneconomic feasibility. Higher leverage may actually accelerate the problem.
The project should be capable of absorbing the facility's cost under both the base case and a realistic delay scenario.
How to select a private credit lender
The lender should be matched to the project.
The developer should examine the lender's preferred loan size, asset classes, locations, leverage, term and sponsor profile.
Relevant experience is important. A lender familiar with subdivisions may assess staged releases efficiently, while a lender experienced in childcare can understand operator and lease risk.
The developer should ask where the capital comes from and whether it is committed.
References from previous borrowers, advisers and consultants can provide insight into how the lender behaves after settlement.
The developer should also identify who makes decisions during construction and how quickly variations or extensions can be approved.
The cheapest private lender is not necessarily the most reliable. Execution capability and conduct during the project can be more important than a small pricing difference.
Questions to ask before accepting a private credit term sheet
The developer should confirm the maximum facility, LTC, LVR, equity requirement and treatment of capitalised interest.
All interest, fees, minimum returns and exit costs should be stated clearly.
The MOIC calculation, if applicable, should be modelled under early, expected and delayed repayment.
The term, extension options and extension pricing are critical.
The developer should understand when equity must be contributed and how cost overruns will be handled.
Presale, prelease, valuation and builder conditions should be identified.
Security, guarantees, cash controls, distribution restrictions and events of default should be reviewed.
The term sheet should also state which terms are approved and which remain subject to investment committee, valuation, QS review or legal due diligence.
A fast term sheet is useful only if the pathway to settlement is clear.
Common misconceptions about private credit
One misconception is that private credit is only for distressed or rejected borrowers. In reality, experienced and well-capitalised developers use it strategically.
Another is that private lenders do not require detailed due diligence. Most credible lenders require valuation, QS, legal and financial review.
A further misconception is that high leverage automatically improves the project. It improves capital efficiency but also increases fixed cost and risk.
Some developers assume private credit is unregulated. The regulatory position depends on the entity, fund, investors and activities, and ASIC has increased its focus on the sector.
Others assume a private lender will always be more flexible after settlement. The facility documents ultimately govern the relationship.
Private credit is a sophisticated source of capital, not a shortcut around project fundamentals.
The future of private credit in Australian development
Private credit is likely to remain an important part of Australian property finance.
Developers continue to need capital that can respond to complex projects, rapid settlements and gaps between senior bank debt and equity.
Investors continue to seek income and diversification through private markets.
At the same time, regulatory expectations around governance, valuation, disclosure and conflicts are likely to become more demanding.
Stronger standards should improve confidence in the sector, although they may also increase compliance costs and reduce the availability of capital from weaker or less established providers.
Banks and private lenders are likely to remain complementary rather than mutually exclusive. Projects may move between the two markets as risk changes.
The developers most likely to benefit will be those who understand the purpose of each capital source and use private credit deliberately rather than reactively.
Frequently asked questions
Is private credit the same as non-bank finance? Private credit is a major form of non-bank finance, although the non-bank market also includes other lenders and funding models.
Is private credit only used when a bank declines? No. Developers may choose it for speed, leverage, flexibility, lower presale requirements or specialist project expertise.
Is private credit always more expensive? It is generally more expensive than bank senior debt, but total project value may still be greater if the facility preserves equity or prevents costly delay.
Can private credit fund the entire development? It can fund a senior or stretch senior portion, but genuine developer or investor equity is generally still required.
Can private credit be refinanced by a bank? Yes, if the project later satisfies bank requirements.
What is the greatest risk for developers? The combination of high leverage, short loan terms and expensive extensions can create pressure if the exit is delayed.
Are all private lenders the same? No. They differ substantially in cost, leverage, asset appetite, funding certainty, governance and conduct.
Why is ASIC focusing on private credit? The market has grown rapidly, and ASIC has identified the need for stronger standards in areas such as governance, valuation, disclosure and conflicts.
Conclusion
Private credit has become a permanent and increasingly important part of Australian property development finance.
Its growth reflects genuine demand from developers for speed, leverage and flexibility, together with investor demand for privately negotiated income-producing assets.
The funding can unlock commercially sound projects that do not fit traditional bank policy. It can also preserve developer equity and allow transactions to proceed within tight time frames.
Those benefits come with higher cost, stronger controls and greater sensitivity to delay and valuation risk.
Developers should therefore assess private credit as part of the complete capital strategy. The facility must fit the project's margin, cash flow, sponsor capacity and exit.
Sources and further reading
Australian Securities and Investments Commission, Report 814: Private credit in Australia, released 22 September 2025.
Australian Securities and Investments Commission, Report 820: Private credit surveillance report - retail and wholesale surveillance, released 5 November 2025.
Reserve Bank of Australia, Financial Stability Review, March 2026.
Australian Prudential Regulation Authority, System Risk Outlook, May 2026.
Disclaimer
This article provides general information only and does not constitute financial, legal, tax, investment, fund, valuation or credit advice. Private credit terms, risks and regulatory obligations vary between lenders, funds, borrowers and projects. Developers should obtain advice from appropriately qualified professionals before entering into any transaction.