Private Credit vs Bank Lending for Property Development

The choice between bank lending and private credit for your development isn't about prestige or preference — it's about which structure actually gets your deal across the line on terms that work for your feasibility. Banks offer lower rates but impose conditions that disqualify more projects than they fund. Non-bank lenders move faster and flex further, but the cost of capital has to be absorbed by your margin. Understanding where each sits in the capital stack, and when each makes sense, is the difference between a deal that proceeds and one that stalls at credit.

How Banks Approach Development Lending

The major banks — CBA, ANZ, Westpac, NAB — remain the lowest-cost source of development finance in Australia, but their credit appetite is narrow. They're structuring against risk-adjusted returns on regulatory capital, which means their requirements are built around downside protection, not your timeline.

Presales and Debt Cover

Most major bank construction facilities require presales sufficient to cover 100% of the peak debt position — unconditional contracts, not expressions of interest or reservations. In markets like Canberra's inner north or inner south, where boutique apartment stock can be slow to presell at the volumes banks require, this threshold alone kills otherwise viable projects.

Pricing and LVR

Bank pricing is typically structured as BBSY plus a margin of 2.5–4.0%, depending on sponsor profile, loan size, and deal complexity. However, banks cap LVR on gross realisable value (GRV) at 60–65%, and they apply their own conservative valuation methodology — often discounting GRV assumptions your feasibility relies on. The effective land component LVR they'll accept is typically lower still, meaning you're funding more of the project from equity or mezzanine.

Credit Process and Sponsor Profile

Bank credit decisions move through multiple committees and can take 8–14 weeks from lodgement to formal approval. They favour sponsors with demonstrated delivery experience — prior projects, audited financials, professional project teams. First-time developers or those with a mixed track record will struggle regardless of the underlying deal quality.

How Private Credit Funds Operate

Private credit has grown significantly as an asset class in Australian property finance over the last decade. Non-bank lenders — ranging from specialist development financiers to institutional credit funds — now provide a meaningful share of construction and land finance for mid-market developers. They operate outside the APRA framework that constrains bank appetite, which gives them structural flexibility banks cannot match.

Pricing and LVR

Private credit fund pricing typically ranges from BBSY plus 6–10%, depending on deal risk, LVR, presale position, and sponsor experience. Some funds also charge establishment fees of 1–2% and may require equity participation in higher-risk transactions. In exchange, LVR on GRV can reach 70–75%, and some funds will take a senior position covering land and construction where banks would require a split between first mortgage and mezzanine.

Presales and Flexibility

This is where private credit genuinely diverges from bank policy. Some funds will consider transactions with zero presales where the sponsor has a credible track record, a strong feasibility, and a clear exit strategy. Others require 30–50% coverage rather than 100%. For projects where marketing hasn't commenced or where the product is non-standard, that flexibility is material.

Speed to Approval

Credit decisions from private credit funds can move in 2–4 weeks for well-prepared applications. The decision-maker is typically in the room — not a committee reviewing a credit paper written by someone who's never seen the site. That speed matters when you're under a contract deadline or when market conditions are moving.

A Direct Comparison

When to Choose Private Credit

There are specific circumstances where non-bank lending is not a compromise — it's the correct instrument for the deal.

Presales Aren't Achievable Before Site Acquisition

Some acquisition opportunities don't allow time to run a presale campaign before settlement. If you're purchasing under a competitive process or a short-dated option, you need finance that doesn't require a presale condition to be satisfied at drawdown. Credit funds structured around sponsor experience and feasibility quality can move on this basis where banks cannot.

Complex Planning or Site Conditions

Mixed-use developments, sites with planning overlays, heritage constraints, or staged subdivision require a lender who can read the complexity and make a decision. Bank credit assessors work from templates. Non-bank lenders with development expertise can assess a nuanced feasibility and price for the risk rather than declining on the basis that the deal doesn't fit a standard category.

Speed Is a Commercial Requirement

If a vendor requires a 30-day settlement, or if you're refinancing a land position approaching maturity, the 8–14 week bank credit process isn't available to you. This route prioritises execution over rate, and for time-sensitive deals, that's the correct trade-off.

The Deal Doesn't Fit the Bank Credit Box

Sponsor with one or two prior completions but limited audited financial history. A project in a submarket banks consider secondary. A product type — serviced apartments, co-living, mixed commercial and residential — that sits outside standard bank matrices. In each case, the deal may be fundamentally sound but structurally ineligible for major bank credit. Non-bank lending exists precisely for this gap.

How We Structure the Decision

At Black Mountain Financial, we don't begin with a lender — we begin with the feasibility. George Popadalis and the team run each development transaction through a structured analysis: project costs, GRV assumptions, presale position, sponsor profile, and timeline. That analysis determines whether the deal qualifies for bank credit on terms that work, or whether non-bank or private credit capital is the correct first call.

Where a transaction is bank-eligible, we know which of the major banks are currently active in the relevant asset class and geography — the ACT, regional New South Wales, and across the eastern seaboard. We work across 50-plus lender relationships, including the major banks and a range of specialist non-bank lenders and private credit funds, which means we know which desk is open and on what terms before we lodge a formal application.

The decision between bank and non-bank financing is a financial modelling question as much as a credit question. In some structures, the higher cost of a non-bank facility is more than offset by a lower equity requirement — improving cash-on-cash returns even where the headline rate looks unfavourable. In others, the bank rate is worth waiting for. We model both, present the comparative outcomes, and let you make an informed decision.

If you're assessing a development opportunity and want to understand what's available in the current market — and at what cost — speak with us about development finance or review how we approach commercial property transactions.