If you’re a business with less conventional finance needs or circumstances, you may find it challenging to seek finance from traditional financial institutions such as banks or credit unions. This is often because of the regulatory pressure that exists when dealing with large institutions and the associated red tape and industry policies. It’s for this reason private lending is becoming a popular growing finance sector, providing benefits and opportunities to both lenders and borrowers.
With less bureaucracy, deals can be agreed on and settled quickly and protection is provided for participants through similar laws, regulations and rules as banks, as administered by the Australian Securities and Investments Commission (ASIC).
How do you access private finance though and how exactly does it work? Head of Commercial and Private Finance at Growth Point Capital, Daniel Keioskie, has more than 25 years industry experience and is well versed at the ins and outs of private lending for businesses and individuals. Here he passes on his knowledge to us via a Q&A.
Q: What can private finance be used for?
A: Private lending can take various forms including business loans, short-term lines of credit, property financing and more. It can be used by small and medium sized businesses for working capital, expansion or equipment purchases. It can also be used to purchase property or to finance property development projects.
Q: How do I find a private lender?
A: As a finance broker, it is our role to bring lenders and borrowers together. We have a number of funders that are constantly looking for private investment opportunities. We present these parties with opportunities as they arise by way of a Funding Proposal. The proposal outlines all the elements of the deal including the loan purpose, terms, risks and returns.
Q: Who sets the interest rates on a private loan?
A: We work with the private lender to set an interest rate for the loan and to determine repayment schedules, security and other terms. Generally interest rates are slightly higher compared to traditional banks to compensate for the increased risk associated with private lending.
Q: How is the loan secured?
A: Often security by way of personal or corporate guarantees and / or mortgages over any property being financed is provided to the lender. This acts as a safeguard to the lender in case the borrower defaults on a loan.
Q: How are private loans regulated?
A: Private lenders and borrowers are protected by regulations administered by the Australian Securities and Investments Commission (ASIC), National Consumer Credit Protection Laws and Australian Consumer Law. As a finance broker, we create a formal legal agreement between the lender and the borrower and ensure all the legalities of the transaction are adhered to.
Q: What are the advantages and disadvantages of private lending?
A: The ability to access finance where it may otherwise have been difficult, or impossible and the fast approval processes of private lending are distinct advantages. This can outweigh the disadvantage of paying a slightly higher interest rate on the loan itself.
In Summary
Private lending offers a valuable finance alternative to traditional mainstream lending, providing opportunities and benefits to both lenders and borrowers. Using a broker experienced in private lending opportunities is critical to ensure both parties understand the terms, conditions and risks associated with the loan and that relevant laws and regulations are adhered to.
For more information on private lending opportunities contact our experienced team.
Disclaimer: General information is provided and has been prepared without considering your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal; tax or financial advice and you should always seek professional advice in relation to your individual circumstances.