What is Private Funding for Non-Bank Properties?

Some properties fall outside what major banks will lend against. A warehouse conversion on mixed-use zoning, a boarding house near North Road, or a property with structural issues flagged in the building report can all trigger a bank decline even when the buyer has strong income and a solid deposit.

Private funding fills that gap. It operates through family offices, high net worth individuals, and specialist non-bank lenders who assess the deal on asset value and exit strategy rather than strict lending policies. You pay more in interest and fees, but you gain access to capital when no other option exists.

When Banks Decline Based on Property Type

A bank decline based on property type means the lender's valuer or credit team has flagged the asset as higher risk or harder to resell. This applies to properties with non-standard construction such as mud brick or steel frame, properties on land smaller than the lender's minimum, or properties with multiple dwellings on a single title. It also applies to boarding houses, serviced apartments, or commercial conversions in Ormond where zoning creates ambiguity.

Consider a buyer who exchanged contracts on a dual-occupancy property near Ormond railway station. The property had two self-contained units on one title, both tenanted. The buyer intended to live in one unit and rent the other. Three banks declined the application because their policy required properties with multiple dwellings to be subdivided or to meet specific lending criteria the property did not satisfy. The buyer had exchanged with a 30-day settlement and no finance clause.

A private lender approved the loan at 65% loan to value ratio within five days. The interest rate was 9.8% per annum, variable. The loan term was 12 months, giving the buyer time to subdivide the title and refinance to a bank at a lower rate. The buyer paid an establishment fee of 2% and a monthly servicing fee. Settlement proceeded on time.

How Private Lenders Assess the Deal

Private lenders base their approval on the asset's current value, the loan to value ratio, and the borrower's exit plan. They do not rely on automated credit scoring or employment verification in the same way banks do. The valuation drives the decision. If the property can be sold quickly to recover the loan amount in a worst-case scenario, the lender will proceed.

The lender orders a valuation from a registered valuer. That valuation determines the maximum loan amount. Most private lenders cap LVR at 65% to 70% for residential property and 60% for non-standard assets. The borrower must demonstrate how they intend to repay the loan within the agreed term, whether through sale, subdivision and refinance, or another income event.

In Ormond, properties near McKinnon Secondary College or along the Nepean Highway corridor may attract interest from buyers seeking renovation opportunities or dual-income setups. When those properties have structural issues, outdated wiring, or non-compliant additions, banks decline and private lenders step in. The lender does not require the property to meet bank standards. They require the property to hold enough value to secure the loan.

The Cost Structure of Private Funding

Interest rates on private loans range from 8% to 13% per annum depending on LVR, property type, and borrower profile. The rate is almost always variable. Establishment fees range from 1.5% to 3% of the loan amount, payable at settlement. Some lenders charge monthly servicing fees between $100 and $300. Some charge exit fees when the loan is repaid early, though this varies by lender.

If you borrow $400,000 at 10% per annum for 12 months, the interest cost is $40,000 assuming interest-only repayments. Add a 2% establishment fee of $8,000 and monthly servicing fees of $200, and the total cost over 12 months is $50,400. That figure does not include valuation, legal, or settlement costs.

The higher cost is the trade-off for speed and flexibility. A private loan application can be approved in 48 hours and settled in seven to ten days if the valuation and legal work are completed promptly. Banks take three to six weeks for standard applications and longer for non-standard properties, assuming they approve at all.

Building an Exit Strategy That Works

Every private lender requires a clear exit strategy before they approve the loan. The exit strategy is the plan to repay the loan within the agreed term, which is usually six to 24 months. Common exit strategies include refinancing to a bank once the property is subdivided or renovated, selling the property, or using income from another source such as a business sale or inheritance.

The exit strategy must be realistic and supported by evidence. If the plan is to subdivide and refinance, the borrower should provide a town planning report showing the subdivision is feasible, a quantity surveyor's estimate for the work, and a timeline. If the plan is to sell, the borrower should provide a sales strategy and a valuation showing enough equity to repay the loan after agent fees and costs.

Lenders review the exit strategy at application and may require updates during the loan term. If the strategy is not progressing as planned, the lender may require early repayment or additional security.

When to Consider Private Funding in Ormond

Private funding makes sense when you have exchanged contracts on a property that banks will not lend against and you need to settle within weeks. It also makes sense when you are purchasing a property with immediate upside through renovation, subdivision, or rezoning, and you plan to refinance within 12 months once that work is complete.

It does not make sense as a long-term hold. The interest cost and fees make private funding expensive compared to bank lending. If you cannot see a clear path to refinancing or repaying the loan within 12 to 24 months, private funding creates financial pressure without resolving the underlying issue.

In our experience, buyers who use private funding successfully are those who have a specific plan, a realistic timeline, and access to funds or equity to execute that plan. Buyers who use private funding as a last resort without a clear exit strategy often struggle to repay the loan and may be forced to sell the property at a loss.

If you are considering a property purchase in Ormond that falls outside bank lending criteria, or if you have already exchanged and been declined by a bank, call one of our team or book an appointment at a time that works for you. We work with private lenders across Australia and can structure a solution that gives you time to execute your plan and transition to lower-cost funding.

Frequently Asked Questions