Why Brokers Are Turning to Private Lending

Private credit has significantly expanded recently, with brokers explaining their increasing use of private lenders.

According to the Reserve Bank of Australia (RBA), global activity by non-bank financial institutions (NBFIs) has grown over 40% since July 2019, surpassing the 25% growth in bank credit. NBFI activity in Australia is growing at about 16% annually, with the market valued between $150 billion and $200 billion.

Private lenders are benefiting from regulatory and capital constraints on banks. After a 2016 review by the Australian Prudential Regulation Authority (APRA) revealed inadequate controls in bank lending, high loan-to-value ratio (LVR) lending decreased. Private lenders have filled the gap with mezzanine solutions for LVRs between 60% and 90%.

Why Brokers Prefer Private Lending

Brokers are increasingly turning to private lenders due to their flexibility, particularly for clients with complex credit needs. John Alvarez of Finselect Group highlights that private lending is crucial for self-employed clients and businesses, offering more adaptable and affordable options.

Dion Fernandes of Emerge Finance values private lenders for their quick approval and fewer bureaucratic hurdles. Despite higher rates, the speed and convenience make private lending an attractive alternative.

Citi’s Brendan Sproules sees private lenders as a competitive threat to banks, driven by structural changes in the financial system.