Private first mortgage business loans after a bank says no

How does a private first mortgage work?

A private first mortgage is exactly what it sounds like. A private or non-bank lender lends to your business and registers a first mortgage over property, so it ranks first if the property is ever sold. The property can be your home, an investment property or commercial premises, and it can be owned by you, your company or trust, or a related party who agrees to provide security.

It’s commonly used to:

• Refinance a bank that won’t renew or extend.
• Borrow against property you own outright.
• Clear an ATO debt or consolidate expensive short-term debts.
• Fund a business need when the bank’s policy said no.

Amounts range from $20,000 to $5,000,000, for business purposes only.

Why private lenders can say yes when banks don’t

Banks rely heavily on tax returns, credit scores and standard policy. Private lenders give much more weight to two things: the equity in the property and the exit, meaning how the loan will be repaid.

That shift in focus is why private first mortgages are so often the answer after a decline. A lender comfortable with the security and the plan may accept:

• Defaults, judgments or past insolvency.
• An ATO debt, especially if the loan clears it.
• A short trading history.
• Overdue tax returns, with a plan to lodge.
• A property type or location a bank won’t take.

It doesn’t mean anything goes. A responsible private lender still needs to be satisfied you can meet the loan’s obligations and that the exit is realistic.

What will a private lender look at?

Area	What they want to understand
The property	Address, type, condition, rough worth, who owns it
Existing debt	Balance, lender, any arrears
Equity	Room between the total debt and the property’s realistic worth
Purpose	Exactly what the funds are for
Exit	How and when the loan will be repaid
Your story	What led here, explained simply
Identity and structure	Who’s borrowing, who’s guaranteeing

You’ll usually need far fewer documents than for a bank loan, but each one matters more. Our approval readiness checklist helps you prepare.

The exit plan: the heart of a private loan

Because private first mortgages are often shorter term, the exit is critical. Common exits include:

1. Refinancing to a bank once the issue that caused the decline is fixed.
2. Selling the property, or another asset.
3. A known payment, such as a contract, an insurance claim or a legal settlement.
4. Trading income over the term.

A strong exit is specific and has a backup. Our guide to building an exit strategy for a private loan explains how to write one.

What does it cost?

Private lending costs more than bank lending. You’re paying for flexibility and for a lender willing to take on a situation others won’t. Every loan is priced on the security, the loan size, the term and the risk, so we don’t publish rates. Before you commit, you should see the total cost in dollars, including establishment fees, legal costs and any ongoing charges, so you can weigh it against the problem it solves.

Thinking about a private first mortgage? Tell us about the property and what you need.

First mortgage or second mortgage?

If you already have a bank home loan you’re happy with, a private second mortgage may be simpler and cheaper overall, because it leaves your existing loan alone. A first mortgage makes more sense when the existing loan is expiring, in arrears, or when the bank won’t consent to a second-ranking security.

Illustrative example: A family-owned bakery’s bank declined to renew its commercial loan after a year affected by an equipment failure. A private lender refinanced the loan with a first mortgage over the bakery’s freehold premises, releasing extra funds to clear an ATO balance. The plan was to return to a bank after two clean years of returns.

Questions to ask a private lender before you commit

Private lenders vary widely. Before signing, it’s sensible to ask:

• What is the total cost of the loan in dollars, including every fee?
• How is interest paid: monthly, prepaid or capitalised?
• What happens if I repay early?
• What happens if I need to extend at the end of the term, and what would that cost?
• What are the default terms and charges?
• Who will I deal with during the loan if something changes?

Get the answers in writing and have your lawyer review the loan documents. Independent legal advice is usually required for private mortgages, and it’s worth taking seriously rather than treating as a formality.

Signs a private first mortgage may not be the right answer

Sign	Why it’s a concern
No realistic exit	The loan may need to be rolled at increasing cost
The business is losing money monthly	More debt may deepen the problem
The property is your only asset and there’s no backup	The risk to your home is high
The amount barely covers the problem	You may need more finance soon

If any of these apply, it may be worth speaking to your accountant before borrowing.

Is a private first mortgage right for you?

It can be, if you have property, a clear purpose and a realistic way out. Sending us an enquiry takes about a minute and doesn’t trigger a credit check. Your details aren’t sent around to a list of lenders, and a real person reads your situation and calls you. Please tell us about the property, any current loan and the decline you received, so we can match you properly. See if you qualify.