How private lenders assess your loan

How does a private lender decide whether to say yes?

A private lender decides by asking four questions, usually in this order: is the property good security, is there enough equity, how will the loan be repaid, and who is the borrower? Each question has its own evidence, and a weakness in one can often be offset by strength in another. A property with generous equity and a signed sale contract can carry a borrower whose credit file is messy. A borrower with an excellent record but an unmarketable property and a vague plan may struggle.

This is a different logic from bank lending, where the first question is usually whether documented income can service the loan under standard policy. Private lenders take responsibility for their own credit decisions, and many are small enough to talk to a broker about the story behind the file. That makes preparation and presentation unusually valuable.

Ownright Custom Finance, led by Trevor Scott, arranges private finance Australia-wide. Understanding how lenders think is a large part of the work: it determines which lender a file goes to, how it is presented and what is needed upfront.

What do private lenders look at in the property?

The property is the lender’s safety net, so it receives close attention. Typical questions are:

• What is it? Standard house, unit, vacant land, commercial building, rural holding, development site or something specialised.
• Where is it? Location affects how deep the buyer pool is and how quickly a sale could happen if needed.
• What is the title like? Single owner or multiple, any caveats, easements, covenants or encumbrances, and whether it is held by a company, trust or SMSF.
• What condition is it in? Obvious defects, incomplete construction or contamination can limit value.
• Is it owner-occupied, tenanted or vacant? Occupation affects how readily it could be sold and what rights others have.
• What are the zoning and use? Particularly for commercial, mixed-use and rural land.

The more liquid and conventional the property, the more comfortable most lenders are. Unusual assets are not excluded, but they involve more diligence, a more conservative view of value and sometimes a lower loan amount.

How does a valuation work?

The valuation gives the lender its figure for the property’s worth, and everything else is measured against it. Lenders accept different types depending on their policy, the property and the loan size:

Valuation type	What it involves	Typical use
Full independent valuation	Valuer inspects inside and out and prepares a report	Larger loans, unusual property, many first mortgages
Kerbside or drive-by	Valuer inspects the exterior and surrounds	Moderate loans on standard property
Desktop or automated	Data-based estimate without inspection	Smaller loans or quick screening, where the lender allows

The valuer is usually instructed by the lender or from the lender’s panel, and the borrower often pays for it. Valuation is frequently the longest single step in the process, so asking early which type applies and arranging access to the property saves time. If the valuation comes in below expectation, the loan amount may reduce, or the structure may need to change.

What does equity mean to a private lender?

Equity is the gap between the property’s value and the debt secured against it. Lenders express it as a loan-to-value ratio, often called LVR, which compares the total loan, including any first mortgage, to the property value. A lower LVR means a larger buffer, which protects the lender if the property has to be sold quickly or at a discount.

Each lender sets its own comfort limits. They tend to move with:

• Property type. Standard residential generally supports more than vacant land or specialised assets.
• Location. Deep markets tend to be viewed more favourably than thin ones.
• Ranking. A first mortgage carries less risk than a second, and a second less than a third.
• The exit. A strong, evidenced exit can support a higher position than a vague one.
• The loan term. Shorter loans carry less time for values to move.

Because the second mortgage lender ranks behind the first, the combined position is what counts. Our guide on second mortgage pros and cons covers this in detail.

Why is the exit strategy so important?

On a short-term loan, the exit is effectively the repayment source. A lender with a mortgage is protected by the property, but it would much rather be repaid by plan than by enforcement. So the question is: how, specifically, will this loan be repaid, and by when?

Lenders respond to evidence, such as:

1. A signed, unconditional contract of sale with a settlement date.
2. A conditional approval from a refinance lender, or a broker’s written strategy for reaching one.
3. An accountant’s letter confirming when outstanding lodgements will be completed.
4. Documents proving incoming funds, such as a probate grant or a consent order.
5. Builder contracts and approvals for a project completion exit.

Weak exits include “I’ll refinance later” with nothing behind it, or a sale plan with no listing, no appraisal and no timeline. A backup exit, which depends on something different from the primary one, further strengthens a file. Our guide on bridging loan exit strategies goes through the common exits and their risks.

What do lenders look at in the borrower?

Borrower assessment in private lending is real but is weighted differently from the bank approach. Lenders typically consider:

• Identity and ownership. Everyone on title, and any guarantors, with verified identification.
• Purpose. What the money is for, in plain terms.
• Background and experience. Business history, property experience and track record.
• Credit history. Defaults, arrears, judgments or arrangements, read in context.
• Current obligations. Other debts, including tax debts and creditors.
• Transparency. Whether the borrower is open about problems.

Credit events are not automatically disqualifying. A lender wants to know what happened, whether it is resolved and why it will not derail the new loan. Concealed problems are far more damaging than disclosed ones.

Where a loan is regulated consumer credit, responsible lending obligations under the National Credit Act apply, and ASIC is the regulator. Business and investment loans sit in a different category. Ownright handles that classification as part of the process.

How are income and serviceability treated?

For many private loans, the borrower’s income is a secondary support rather than the main basis of approval. Some structures do not require ongoing repayments at all, for example where interest is prepaid or capitalised and the loan is repaid in full from a sale or refinance. In those cases the lender is relying on the property and the exit.

Where repayments are made as the loan runs, lenders still want some confidence that they can be met, but the documents they accept vary. Possibilities include tax returns, accountant’s letters, bank statements, business activity statements or a signed declaration, depending on the lender and the loan. Self-employed, seasonal and contract workers often find this more workable than bank rules. Our page on low doc private mortgages explains how lighter documentation is approached.

How do existing debts and tax issues affect assessment?

Lenders will usually ask about everything secured on the property and any significant unsecured obligations. A first mortgage in arrears, a judgment or an ATO debt all shape the risk picture and the structure.

Tax debts are common. The ATO notes that debts of $200,000 or less may be eligible for a payment plan through online services or the self-help phone line, while larger debts, repayment periods over two years, or situations involving firmer recovery action require direct contact. A lender will want to know which category applies and what arrangement is in place, because an active, well-kept plan reads very differently from an ignored debt. Our guide on ATO debt and your property covers the options.

What does the process look like from the lender’s side?

1. Initial screen. The broker provides a summary and the lender checks it against its appetite: property type, location, loan size, ranking and exit.
2. In-principle feedback. The lender indicates whether it is interested and on what broad terms.
3. Full application. Documents are provided, identity is verified, searches are done.
4. Valuation. Instructed, inspected, reported and reviewed.
5. Credit approval. The lender’s decision-maker confirms the terms and conditions.
6. Offer and legal advice. A letter of offer is issued, and borrowers are encouraged to take independent legal advice.
7. Settlement. Documents are signed and the security is registered or lodged, for example a mortgage or a caveat. A caveat, as the NSW Registrar General’s guidelines describe it, records a claimed interest and blocks registration of conflicting dealings, subject to certain exceptions.

How long this takes depends on the lender, the security and how quickly documents arrive.

What commonly causes a private loan to be declined?

• No credible exit. The single most common reason.
• Thin equity. A buffer too small for the lender’s comfort.
• Difficult or illiquid security. For example, a remote property with a very narrow buyer pool.
• Title or ownership problems. Unresolved disputes, missing signatories or unclear authority.
• Undisclosed problems. Debts, proceedings or arrears that surface late.
• Unrealistic expectations. A term or loan amount that the property and plan cannot support.
• Incomplete documents. Gaps that prevent the lender finishing its checks.

Most of these can be addressed before submission, which is why a conversation with a broker before applying usually saves time.

What documents should be ready?

• Photo identification for every borrower, owner and guarantor.
• Title details and a recent rates notice.
• Statements for existing mortgages and secured loans.
• A short summary of the loan purpose.
• Written evidence of the exit.
• Entity documents if a company, trust or SMSF is involved.
• ATO statements and payment plan details if a tax debt is part of the picture.
• Basic financial information as the lender requires.

What does an illustrative assessment look like?

This is illustrative only and uses no real names. A self-employed owner wants a short-term loan against a residential property to clear a debt, with a bank refinance planned in several months. The lender sees a standard house in a strong market, a combined loan well within its comfort, a clear purpose and an exit supported by an accountant’s lodgement timetable and a broker’s refinance strategy. The credit file shows an old default that the borrower has explained. The lender approves subject to valuation.

Change two things: the property is a remote rural block with a thin buyer pool, and the exit is simply “refinance later”. The same lender asks for lower leverage, a second exit and more evidence. The difference is not the borrower, but the property and the plan.

How does Ownright prepare a file for lenders?

Ownright begins by looking at the file the way a lender will. The team checks the property and title, calculates the combined position, tests the exit, and flags what a lender will want before it asks. It then matches the file to lenders whose appetite fits, including funding sources that many brokers do not know exist. Preparing the story, the documents and the exit upfront is often the difference between a quick answer and a stop-start process. Pricing is set on your circumstances and speed depends on the lender, the security and how quickly documents arrive.

To have your situation looked at, call 03 7043 7233 or send your details. For more on the different types of lender, see our page on private lenders in Australia.