How to Become a Private Lender in Australia: Complete Guide

Why Become a Private Lender?

Private lending offers Australian investors an alternative to traditional investments like shares, property, or term deposits. With potential returns of 8% to 15%+ annually secured against real property, it's an attractive option for those seeking regular income and capital security.

What Returns Can You Expect?

Typical Returns by Loan Type

Loan Type	Annual Return	Risk Level
First mortgage (residential)	9% - 12%	Lower
First mortgage (commercial)	10% - 14%	Medium
Second mortgage	14% - 18%	Higher
Development finance	12% - 16%	Medium-High

Compared to Other Investments

Term deposits: 4% - 5%
Dividend shares: 4% - 7% (plus capital gains/losses)

Residential rental yield: 3% - 5%
Private lending: 9% - 15%

The premium reflects the work involved and risks taken, but with proper due diligence, private lending can deliver consistent, attractive returns.

Legal Requirements in Australia

Do You Need a Licence?

For business-purpose loans: Generally no licence required. Most private lending is structured as business-purpose (investment, development, business cash flow) which falls outside consumer credit regulations.

For consumer loans: If lending for personal, domestic, or household purposes, you need an Australian Credit Licence (ACL) and must comply with the National Consumer Credit Protection Act 2009 (NCCP).

Most private lenders focus on business-purpose lending to avoid regulatory complexity.

Legal Structure Options

Individual: Simplest structure. You lend directly from personal funds.

Pros: Simple, no setup costs
Cons: Personal liability, no asset protection

Company: Lend through a Pty Ltd company.

Pros: Limited liability, professional image
Cons: Setup and compliance costs

Trust: Lend through a family or unit trust.

Pros: Asset protection, tax flexibility, estate planning
Cons: More complex, trustee duties apply

SMSF: Lend through your self-managed super fund.

Pros: Tax advantages (15% or 0% in pension phase)
Cons: Strict rules, arm's length requirements, must be properly documented

Consult an accountant and lawyer to determine the best structure for your situation.

Getting Started: Step by Step

Step 1: Define Your Lending Criteria

Before seeking borrowers, clarify what you will and won't lend on:

Loan size: What's your minimum and maximum?

Most private lenders start with $100,000 to $500,000 loans
Larger loans spread fixed costs but concentrate risk

Property types: What will you accept as security?

Residential houses/units (safest)
Commercial property

Development sites
Vacant land

Rural property

Geography: Where will you lend?

Metro areas have more liquidity (easier to sell if needed)
Regional may offer better returns but higher risk

LVR limits: Maximum loan-to-value ratio

Most private lenders stay under 70% for first mortgages
Conservative lenders stay under 65%

Step 2: Build Your Team

Successful private lending requires professional support:

Solicitor: Essential for:

Drafting loan agreements
Registering mortgages

Handling defaults if they occur

Valuer: Independent valuations protect you from overpaying

Use registered valuers
Get full valuation reports, not just estimates

Accountant: For:

Structuring your lending entity
Tax planning on interest income

SMSF compliance if applicable

Mortgage broker (optional): Some brokers bring deal flow in exchange for commission

Step 3: Source Deals

Finding quality borrowers is the key challenge. Options include:

Mortgage brokers: Many brokers have borrowers who don't fit bank criteria. You pay them a commission (typically 0.5% to 1%) for introductions.

Direct marketing: Website, networking, property investor groups. More work but no broker commissions.

Private lending marketplaces: Platforms like Introducr connect verified borrowers with lenders. You see deal details and choose what to fund.

Referrals: As you build a track record, borrowers and brokers refer others.

Step 4: Assess Deals Properly

For each opportunity, evaluate:

The security:

Get an independent valuation
Verify ownership via title search

Check for existing encumbrances
Consider saleability if you need to take possession

The exit strategy:

How will the borrower repay?
Is it realistic? (property sale, refinance, business income)

What's the backup plan?

The borrower:

Identity verification
Credit check (to understand their situation)

Previous loan history if available
Communication and professionalism

Step 5: Document and Settle

Professional documentation protects both parties:

Essential documents:

Loan agreement specifying all terms
Registered mortgage over the security property

Personal or company guarantees if appropriate
Direct debit authority for repayments

Your solicitor handles mortgage registration with the relevant state Land Registry.

Managing Risk

Diversification

Don't put all funds into one loan. Spread across:

Multiple borrowers
Different property types

Various locations

A portfolio of 5-10 smaller loans is safer than one large loan.

Conservative LVRs

The lower your LVR, the more buffer you have:

At 50% LVR, property can drop 50% before you lose money
At 75% LVR, only 25% buffer exists

Many experienced lenders won't exceed 65% LVR.

Proper Documentation

Cutting corners on legal documentation creates risk:

Unregistered mortgages can be defeated by other creditors
Vague loan terms create disputes

Missing guarantees limit recovery options

Regular Monitoring

Stay on top of your loans:

Confirm interest payments are received
Watch for borrower communication issues

Monitor property market in your security locations
Know your exit timeline

Have a Default Process

Before it happens, know what you'll do if a borrower defaults:

Grace periods and late fees in your agreement
When to issue formal demand

Appointing a receiver
Mortgagee sale process

Your solicitor should guide this, but understand the process upfront.

Tax Considerations

Interest Income

Interest received is assessable income, taxed at your marginal rate (or 15%/0% for SMSF).

Expenses

Deductible expenses include:

Legal fees for loan documentation
Valuation costs

Bad debts (if properly written off)
Professional advice

GST

Private lending is generally a financial supply and GST-free.

Frequently Asked Questions

How much capital do I need to start?

Minimum practical amount is around $100,000 for a single loan, but $500,000+ allows better diversification.

Is private lending passive income?

Not entirely. You need to assess deals, monitor loans, and manage any issues. However, it's less hands-on than rental property.

What if the borrower doesn't pay?

You have a registered mortgage. After following proper default procedures, you can sell the property to recover your funds. This is why conservative LVRs matter.

Can I lend through my SMSF?

Yes, but strict rules apply. The borrower must be unrelated, terms must be commercial, and documentation must be thorough. Get specialist SMSF advice.

How do I find borrowers?

Options include mortgage brokers, direct marketing, professional networks, and lending marketplaces like Introducr where verified borrowers post funding requests.

Common Mistakes to Avoid

Lending to friends or family without proper documentation
Skipping independent valuations to save costs

Exceeding comfortable LVR limits for higher returns
Not verifying exit strategies are realistic

Poor documentation that creates enforcement issues
Concentrating too much in one loan or location

Lending on properties you don't understand (e.g., rural if you only know metro)

Getting Started with Introducr

If you're ready to explore private lending, Introducr provides:

Verified borrowers: All users complete identity verification
Deal transparency: See full details before expressing interest

No upfront costs: Free to browse and submit offers
Direct communication: Message borrowers directly through the platform

Create a lender profile and start reviewing funding opportunities across Australia.