Debunking The Top 3 Private Lending Myths

Beam me up, Scotty.

A once-in-a-generation cost of living crisis has flooded the decks for thousands of SMEs. There’s a barrage of hard choices. Many question whether they can stay afloat…

As business owners you’re hit with a bevy of questions. How do you save a sinking business? How can you grow amidst falling demand? Who can beam you up to financial nirvana during a global financial slowdown?

Non-bank lenders are the answer. Private funders deploy capital from institutional and wholesale money markets to fund you when banks won’t. Our personalised credit assessments and broader risk-appetite allow us to think commercially, whatever the deal. We’re masters of pragmatism. Experienced navigators of embattled financial seas.

But not everyone is so keen. There are some pervasive myths around non-bank lenders which scare off prospective borrowers from a winning solution. How do you cut through the misinformation and find an honest partner to work with?

Read on as we debunk the common misunderstandings…

Myth #1

Non-bank lenders are untrustworthy.

It’s one of the most common critiques against the industry and it couldn’t be farther from the truth.

Non-bank lenders aren’t the opposite of banks. Rather, we are a complementary funding option that caters to different clients. Banks are inflexible while non-banks are lending gymnasts.

Any deals that don’t fit into the banks’ portfolio allocation or fall outside their commercial scope are served by non-bank and private lenders. We’re pragmatic dealmakers and we’re fast. While banks settle in a matter of months we can settle in days. This makes our industry a competitive space for thousands of Australian borrowers.

So private, non-bank and bank lenders fight in the same arena, but aren’t banks the safer option?

Not necessarily. Given their smaller size, non bank and private lenders can respond better to your changing financial situations and get to know your situation more personally. Agility and trust are the natural downstream result.

The important thing to consider is the scale of the industry. There are dozens of private and non-bank options in Australia offering similar products. It can be hard to know which one is right for you, and there will be some bad eggs. So don’t let your choice of lender be a blind date.

Ask the hard-hitting questions.

Have you ever had to recover funds from a client? What are your lending parameters? How have you managed conflict in the past?

Knowing the answers can help you find the honest, compliant lender you’re looking for.

Myth #2

Non-bank lenders approve risky loans.

Non-bank lenders have zero incentive to approve risky loans. Serviceability is one of our most important requirements and the first thing we assess with new borrowers.

There’s no evergreen money tree with heavy-hanging leaves to shower us with capital. All money comes from somewhere and comes with responsibility. For banks this is mainly through depositors and investors. For privates and non-banks it is through investors and institutional funds.

This raises the stakes for non-banks to deploy capital safely. There is little room for risky investments that don’t have a good exit strategy.

Non-bank funds will typically only approve loans for borrowers with strong cash-flows and property security. This gives them a higher level of confidence that the loan will be repaid in full. The property dimension of non-bank funds sets them apart from other financial services.

We often have a much deeper knowledge of local business dynamics and real-estate markets, so are willing to approve loans that the banks might consider risky.

Furthermore, non-bank lenders are run by people with extensive business experience. This gives them a deeply commercial perspective on risk. As such, they take the time to understand your business and your ambitions, weighing up the yield you could expect to make.

If they have confidence in your plans, they will be more likely to fund you.

But don’t just accept what your lender says. It’s crucial to ask the hard questions.

What LVRs do you go up to? How do you manage risk in your loan portfolio? How well do you know your borrowers’ financial situation to better hedge your risk?

Myth #3

Non-bank / private lending is a last resort.

Many borrowers don’t assess their options until it’s too late, resulting in a last-ditch finance attempt with a non-bank or private lender. It’s a chicken or the egg situation.

We can settle fast, often within a week, giving you more room to move on a deal. A fast settlement could be the difference between securing a property and missing out.

Property developers would know this pain well.

Furthermore, private lenders can cater loan terms and repayments to your schedule. We have a wide range of products suited to many different markets. Unlike the banks, the option you decide on with a non-bank or private lender will be malleable.

The personalised credit procedures of non-bank lenders help serve borrowers estranged by the banks. The banks often force you to meet a long checkbox list of criteria. As someone who is self-employed or running a business still recovering from the covid demand-crunch, you might need some leniency on buffers.

Private and non bank lenders understand that and are willing to work with you.

To summarise.

Non-bank and private lenders are an essential funding options to help businesses access better deals and better opportunities. We are agile, flexible, and reliable. It takes all these qualities and more to compete with the financial powerhouses in traditional banking, after all.

Our financial readiness can be manna from heaven if you’re in a pinch.

So, it’s time to set aside the myths around lenders outside the “bank” label once and for all. The next time you’re looking for a loan, sample a range of lenders to find your perfect match!

About the author

Ulrika Lobo

Ulrika Lobo is the lending specialist at Sparrow Loans and has over ten years of experience in the commercial business loan space. Ulrika co-founded Sparrow Loans to provide Australian SMEs with a faster and easier way to access finance. Ulrika is responsible for managing the lending process from underwriting to execution and settlement and post-settlement support.