The short version
- Australian business lending splits into six working categories: major banks, tier-2 banks, non-bank lenders, SMSF specialists, asset and equipment financiers, and cashflow lenders.
- Major and tier-2 banks are the cheapest, but they only lend to a narrow, well-documented type of borrower. Non-bank lenders cost more and in return move faster and take on more deals.
- SMSF specialists, asset financiers and cashflow lenders are specialists. Each one is set up for one kind of deal.
- Your deal decides the category, not your preference. If you match the deal to the category before you apply, you are far more likely to get an approval instead of a wasted decline.
Most business owners think of finance as two options: the bank, or not the bank. The market has more to it than that. There are six types of lender, and each has its own source of money, price range, speed and appetite. Each is set up for a particular kind of deal. Apply to the wrong type and you get a slow no. Apply to the right one and the deal moves. This article covers the six types, what each is for, and how to tell which one your deal belongs in.
Why categories matter
A lender's category tells you more about how it will treat your deal than its brand, its ads or its advertised rate.
Category decides four things. First, where the lender gets its money, which sets its cost of funds and so the lowest rate it can offer. Second, how it is regulated, which affects how careful it has to be. Third, its appetite, meaning the kinds of risk it is set up to take. Fourth, its speed, because a bank funded by deposits and a fintech funded by wholesale money work on very different timelines.
If you get the category right, the rest is easier. The pricing fits, the questions make sense and the timeline is realistic. If you get it wrong, you can do everything else well and still fail. A clean, strong application sent to a lender that cannot fund that kind of deal just takes longer to get a no. So the first job a broker does is find the right category, then the right lender inside it.
The six categories
Major banks
The major banks are Australia's four largest authorised deposit-taking institutions (ADIs). They are who most people mean when they say "the bank".
APRA regulates them, and most of their lending is funded by customer deposits, which is the cheapest and most stable money in the market. You can check any lender's ADI status on the ASIC list of authorised deposit-taking institutions.
If a major bank wants your deal, nobody else will beat it on price. They suit established businesses with two or more years of clean financials, property as security, clear ability to repay and no credit problems. In short, borrowers who fit a standard credit policy and are not in a rush. Owner-occupied premises and long-hold commercial property are their main business, and commercial lending through a major bank is the cheapest option whenever the deal qualifies.
They will not do anything non-standard. Mid-construction assets, short ABNs, ATO payment plans and low-doc deals all get declined. A major bank does not charge more for these. It just says no.
Example: an established medical practice buying its own consulting rooms, with two years of financials and a 35% deposit. That is a textbook major-bank deal.
Tier-2 banks
Tier-2 banks are Australia's smaller ADIs: regional banks, customer-owned banks, and smaller or foreign-owned banks below the big four.
APRA regulates them the same way as the majors, and they are funded in a similar way. APRA's quarterly ADI statistics cover them alongside the big four. Their rates are close to the majors, a little higher on average, and they are still keen for the right deal.
They suit solid businesses that are nearly a major-bank deal but need something the majors won't bend on. That might be a regional location, a niche industry, an unusual mix of security, or a credit team that will look at the whole deal instead of ticking boxes. Tier-2 banks tend to care more about the relationship and will look at the person behind the numbers.
They will not take on deals in real trouble or deals that are far from standard. They are still banks, still regulated by APRA, and still careful compared with non-banks.
Example: a major bank declined a deal on a policy technicality, a lease term a few months short of its rule. A tier-2 bank looked at the commercial reality and wrote it without fuss.
Non-bank lenders
A non-bank lender is any lender that is not an ADI. It cannot take deposits and APRA does not regulate it as a bank.
Non-banks get their money from wholesale debt, securitisation and private credit. That money costs more than deposits, which is why non-bank finance costs more than bank finance. In return they have freedom. A non-bank sets its own rules on what it will lend against and can move quickly.
They suit businesses with a real deal that doesn't fit a bank's template. That might be a newer ABN, income held in a trust, a tight settlement date, a recent restructure, or a credit issue that is being managed. Non-banks are also where low-doc and no-doc loans live. Choosing between bank and non-bank commercial finance comes down to whether your deal needs that flexibility. We place many non-bank deals through our private lending desk.
They will not be the cheapest. For a simple, well-documented, long-hold deal, a non-bank is the wrong choice.
Example: a profitable business with an 18-month ABN and a 14-day settlement, funded low-doc by a non-bank inside a week.
SMSF specialists
SMSF specialists are lenders that write limited recourse borrowing arrangements. This is the set structure a self-managed super fund has to use if it wants to borrow.
When an SMSF borrows to buy property, the loan must sit inside a limited recourse borrowing arrangement (LRBA). The property is held in a separate trust, and the lender can only claim that property if things go wrong. The ATO sets the rules for SMSF borrowing, and they are strict. Rates are higher than normal commercial property loans because the structure is more complex and the lender's claim is limited.
They suit an SMSF buying commercial or residential property. Very often it is the commercial premises the members' own business runs from. SMSF lending involves a lot of structure and paperwork, so it pays to use a lender that does it all the time.
They will not lend outside the LRBA structure or cut corners on it. Many mainstream lenders have stopped SMSF lending altogether, which is why it is now a specialist field.
Example: an SMSF buying the warehouse its members' trading company leases, so the rent builds up the fund instead of a landlord.
Asset and equipment financiers
Asset and equipment financiers lend against one physical asset, like a vehicle, a piece of plant or a machine, and use that asset as the security.
They use chattel mortgage, hire purchase and lease structures, and they range from bank divisions to specialist non-banks. Because the loan is tied to a valuable asset the lender can identify, its risk is limited. That makes this the fastest and easiest category for many businesses to get into, often with low-doc approval for smaller amounts.
They suit any business buying a physical asset that loses value over time, from a single ute to a full fleet of plant. Asset finance is often the first outside finance a growing business uses, and it often settles in days, not weeks.
They will not fund working capital, property, or anything without a specific asset to secure against.
Example: a transport operator financing a prime mover on a chattel mortgage, approved low-doc and settled inside a week.
Cashflow lenders
Cashflow lenders provide working capital. That is the short-term money a business uses to cover the gap between paying out and getting paid.
This category covers unsecured business loans, overdrafts, invoice and debtor finance, and merchant facilities. Fintech lenders funded by wholesale and private money now make up more and more of it. Because a lot of this lending is unsecured and fast, it is the most expensive category. The price reflects the unsecured risk, the speed and the short terms. It does not mean you are getting a bad deal.
They suit a business covering a clear, short-term gap. For example, carrying invoices on 30-to-90-day terms, paying a wages or materials run, or bridging between progress payments. Cashflow finance is designed to be drawn and paid back quickly.
They will not be cheap, and they do not suit anything you plan to hold for years. Using a cashflow facility as long-term finance is one of the most expensive mistakes a business can make.
Example: a contractor with $400,000 in 60-day invoices uses debtor finance to pay this month's wages instead of waiting for the principal to pay.
How to know which category fits your deal
You can put almost any deal in the right category by asking four questions in this order.
First, are you buying a specific asset? If the deal is a vehicle, a machine or a piece of plant, an asset and equipment financier is almost always the answer. If you need short-term working capital to cover a gap, not to buy something, it is a cashflow lender. Then the question is how long you need it for and how much.
Second, if it is a property purchase or a large business loan, does it fit a bank's template? That means two years of clean financials, property as security, clear ability to repay, no recent credit problems and no tight deadline. If yes, start with the major banks. If it is close but not quite, because of a niche, a technicality or the location, try the tier-2 banks next.
Third, if it doesn't fit a bank's template because of unusual income, a tight timeline, a credit issue or a mid-construction asset, it belongs with a non-bank lender. Then the question is which one. This is where the real cost of a business loan matters most, because non-bank pricing varies a lot.
Fourth, and separate from the rest: is the borrower a self-managed super fund? If so, the deal goes to an SMSF specialist no matter what the answers above were. The LRBA rules override everything else.
In practice a deal often touches two categories. A business might use an asset financier for its fleet and a cashflow lender for invoices in the same month. In 13 years of placing these deals, the businesses that do best are the ones that applied to the right category first, more than the ones with the cleanest numbers. That is the most useful thing a broker does: knowing which category a deal belongs in, then which lender inside it. It is worth understanding how a broker is paid before you rely on that judgement. Our lender panel covers all six categories. If you want your deal sent to the right one from the start, start an application.