What exactly is private lending?

Private lending is commonly referred to as “the oldest form of mortgage finance”.

It involves a borrower and the investors having a more direct relationship than what would usually be the deal with a bank or other financial institution. In a traditional borrower/lender relationship, the investor deposits funds with the bank, the borrower then obtains finance from the bank and uses that funding. The investor is paid a rate of return and has no real knowledge of what their money funded.

In the past, private lending has operated in a non-bank environment, where individual investors provide the capital required for the specific loans. At it’s most simple, there may be one investor providing the capital for one borrower.

Both private lending and traditional banking are regulated prudentially in Australia, but by different government regulators. Private lending is in certain cases (only when it falls within the managed investment scheme regime) regulated by the Australian Securities & Investments Commission (“ASIC”), while the banks are regulated by the Australian Prudential Regulation Authority (“APRA”). Transactions in its simplest format are not regulated by ASIC or APRA.

Did you know…?

Private Lending is also known as “Solictor Funding” or “Private Mortgages” as Solictors used to run larger morgage funds before the introduction of the Managed Investment Scheme regulation by the ASIC.

To learn more about Private Lending, get in touch with us today.


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