The short version
- Banks are APRA-regulated deposit-taking institutions. Their money is cheaper, but they lend to a narrower range of deals and move more slowly.
- Non-bank lenders fund themselves from wholesale and private capital. They take on a wider range of deals and settle faster, at a higher price.
- Choose a bank for a clean, fully documented deal with strong security and no deadline pressure.
- Choose a non-bank when speed matters, your income or structure is non-standard, or the asset is mid-construction. You can refinance to a bank later if it makes sense.
Ask most business owners whether to use a bank or a non-bank lender and they'll say the bank, because it's cheaper. That habit costs deals. The better question is which lender will fund this deal, on terms you can work with, in the time you actually have. A bank and a non-bank looking at the same business often reach opposite answers, and both can be right. Below we cover how the two differ, when each is the better choice, and how to weigh a higher rate against a deal that actually completes.
What's the difference?
It comes down to where the money comes from. That shapes the price, the speed, the flexibility and who they'll lend to.
Banks (APRA-regulated ADIs)
A bank is an Authorised Deposit-taking Institution (ADI): a lender licensed to accept deposits from the public and regulated by the Australian Prudential Regulation Authority (APRA). APRA publishes quarterly statistics on every ADI's lending book. Deposits are a cheap, stable source of money, and ADIs can also use Reserve Bank facilities. That low cost of funds is why banks can price commercial finance sharply.
It also explains why they're cautious. APRA regulates ADIs for prudential safety, because the stability of the system depends on their loan books staying clean. So a bank applies a standard credit policy: two years of financials, proven serviceability (the ability to make the repayments), property security, and a borrower who fits the template. Step outside the template and a bank usually declines instead of pricing the risk differently.
Non-banks (specialist, private credit and fintech)
A non-bank lender is any lender that isn't an ADI. It can't take deposits, and APRA doesn't prudentially regulate it. It funds itself from wholesale debt markets, securitisation, private credit funds, family offices and institutional mandates.
That money costs more than deposits, which is why non-bank finance costs more. In return, the lender sets its own credit appetite and can move quickly, two things a bank's structure doesn't allow.
"Non-bank" covers a wide field: large specialist commercial lenders, private credit funds writing structured deals, and fintech lenders offering fast unsecured cashflow finance. We break this down in the six categories of business lender in Australia. They are regulated. Non-bank lenders operate under ASIC oversight, hold credit licences where required, and are usually members of the Australian Financial Complaints Authority (AFCA).
Most commercial finance sits outside the National Consumer Credit Protection Act, which covers consumer lending. A business-purpose loan, bank or non-bank, generally doesn't carry the legal protections a home loan does. That's true whichever lender you choose, and it's one reason the quality of your broker matters.
When a bank is the right call
A bank suits when your deal fits the template and you have time to let the process run.
That means two or more years of clean financials, security the bank likes (most often commercial or residential property), serviceability you can show on paper, and no recent credit problems. For a deal like that, a bank will almost always be cheapest, and on a long-term commercial mortgage the rate difference adds up to real money over the term.
Bank finance also makes sense for a facility you'll keep for years and rarely touch: an owner-occupied premises, a long-term investment property, a core working capital line. The slower, harder process is a one-off cost. The lower rate saves you money every year.
The downside is rigidity and time. Bank commercial deals commonly take four to eight weeks from application to settlement, and the credit process doesn't forgive anything non-standard. If your deal is clean and you're not up against a clock, that's a fair trade. Our commercial lending desk places these deals every week.
When a non-bank is the right call
A non-bank lender is worth its higher price in four situations: the deal needs speed, the income or structure is non-standard, the asset is mid-construction, or there's a recent credit issue a bank won't look past.
Speed-critical settlement
Some deals live or die on the settlement date: a property purchase with a tight contract, an asset bought at auction, a supplier discount about to expire, a refinance up against a deadline. None of these survive a six-week credit process.
Non-bank lenders can often go from application to settlement in days to a fortnight. You pay for that speed, but on a time-critical deal the other option is usually no deal at all.
Non-standard income or structure
Banks read income off tax returns. Plenty of profitable businesses don't look good that way: a newer ABN still building its history, a company holding retained earnings inside a trust, seasonal revenue, or a recent restructure that makes the last two years look messier than the business really is.
A non-bank lender looks at the business as it runs now (current contracts, current cashflow, the actual asset position) instead of rejecting it for not fitting a two-year template. Low-doc and no-doc loans are almost all in the non-bank market.
Construction, development and bridging
Banks have the least appetite for projects mid-construction. A half-built asset is hard for a bank to value and hold as security, and presale or cost-to-complete rules can stall a sound project.
Non-bank and private credit lenders are comfortable here. They write construction facilities drawn against cost-to-complete, residual stock finance, and bridging that covers the gap between one settlement and the next. For developers, private lending is often the right tool for the stage the project is at, not just a fallback.
ATO debt or short credit issues
An ATO payment arrangement or a recent default will usually end a bank application. It rarely ends a non-bank one.
Non-bank lenders look at how the issue is being managed, as well as the fact it exists. A business trading well with an ATO debt on an active payment plan is a fundable deal for several non-bank lenders. Once the issue is fixed and the loan has built some repayment history, that borrower can often refinance to a bank rate.
How the costs compare
Non-bank finance costs more than bank finance. That follows from the cost of funds. Wholesale and private capital costs more than deposits, and the RBA cash rate feeds into bank pricing more directly than non-bank pricing.
A higher cost doesn't automatically make it too expensive. Keep three things in mind:
- The headline rate isn't the whole cost. Establishment fees, line fees, valuation and legal costs, and exit fees all sit on top. A loan with a lower rate and higher fees can cost more than the reverse. We break this down in the real cost of a business loan.
- A higher rate on a deal that completes beats a lower rate on a deal that doesn't. If a bank decline costs you the purchase, the bank's rate didn't matter.
- Non-bank finance is often a bridge. Many businesses use it to get a deal done, keep the loan for twelve to eighteen months, then refinance to a bank. The non-bank rate applies for a set period, not the life of the asset.
So ask what this finance will cost you in total for the time you'll actually hold it, and what not doing the deal would cost you.
How to decide: a three-step framework
Most bank-versus-non-bank decisions come down to three questions, in this order.
- Does the deal fit a bank's template? That means two-plus years of clean financials, property security, provable serviceability and no recent credit issues. If yes, and you have time, start with a bank. If no, a bank will most likely decline, and applying anyway wastes weeks.
- What's the real deadline? If settlement has to happen within a few weeks, a bank's four-to-eight-week process rules it out, whatever the price. With a non-bank, speed is what you're paying for.
- Is this finance long term or a bridge? If you'll keep the facility for years, the bank's lower rate adds up and is worth waiting for. If the finance exists to get one deal done and will be refinanced, the non-bank's higher rate applies for a short, set window, which costs less than it first looks.
A broker runs this check across the whole market at once. Instead of applying to one lender, waiting, then applying to another, your deal goes to the panel of lenders we work across and the answer comes back from the lenders most likely to fund it. In 13 years placing commercial deals, the pattern I see most is a business that assumed it was a bank deal, or assumed it wasn't, and the evidence said otherwise.
If you have a deal to place, start an application. It takes about three minutes, and the response tells you where the deal sits.