Non-bank business lending in Australia: a broker's guide

Most SME brokers already place deals with non-bank lenders. Fewer could explain to a client, in two sentences, what a non-bank lender actually is and why it might say yes when a bank says no. This guide covers the basics: what they are, how they're regulated, where their money comes from, and how to think about them when you're working out where a deal fits.

What is a non-bank lender?

A non-bank lender is a business that lends money but doesn't take deposits from the public. In Australia, an organisation that takes deposits must be an authorised deposit-taking institution (ADI) under the Banking Act, supervised by APRA. Banks, building societies and credit unions are ADIs. Non-bank lenders are not, so they're often called non-ADI lenders.

That single difference shapes almost everything else about them: how they're funded, how they're supervised, and how they price and structure their products. We set out the practical differences in Bank vs non-bank business loans.

In SME lending, non-banks cover a wide range of products, including:

• unsecured business loans

• lines of credit

• short-term working capital loans

• loans secured by property or other assets

• invoice finance and trade finance

• equipment and asset finance

Some specialise in one product. Others offer several.

How non-bank lenders are regulated

A common client question is "are these guys regulated?" The honest answer is "yes, but differently from a bank".

They don't hold deposits, so APRA doesn't supervise them like a bank. APRA's prudential rules for capital and liquidity apply to ADIs. Non-banks aren't protecting depositors' money, so those rules don't apply in the same way.

Larger non-banks do report to APRA. Since 2018, non-ADI lenders that meet a size threshold must register with APRA as registered financial corporations and lodge regular data. The threshold is $50 million in outstanding financing, or $50 million of new lending in the previous financial year. The same reforms gave APRA power to make lending rules for these lenders if their lending materially contributes to risks of instability in the financial system (Hall & Wilcox).

Business lending sits mostly outside the National Credit Code. The National Credit Code mainly regulates credit for personal, domestic or household purposes, and residential investment property. Credit that is predominantly for business purposes is generally outside it, and loans to companies are generally unregulated under the Code whatever their purpose. Lenders must still use business purpose declarations properly: a declaration knowingly used on what is really a personal loan doesn't take it outside the Code (Brightlaw).

The general law still applies. Business lending that falls outside the Credit Code can still be covered by the consumer protection and unconscionable conduct provisions of the ASIC Act (Brightlaw).

Some lenders sign up to industry codes. For example, the Australian Finance Industry Association runs the Online Small Business Lenders Code. It binds signatories that choose to join. It started in June 2018, and the current version took effect on 12 September 2024 (AFIA).

For a broker, the practical point is simple: regulation varies by lender and by product. If your client asks, the lender's own disclosures are the place to check.

Where non-banks get their money

Because they can't use deposits, non-banks fund their loan books in other ways, such as:

• Warehouse facilities. Credit lines from banks or other investors that the lender draws on to write loans.

• Securitisation. Pooling loans and selling securities backed by them to investors.

• Private credit and institutional investors. Funds that lend to, or invest in, the lender.

• Their own equity. Capital from the lender's owners.

This has two flow-on effects you'll see in deals.

Funding costs are usually higher than a bank's. The RBA has noted that online and marketplace lenders' interest rates are often much higher than banks', partly because their own funding costs more (RBA, 2018). That's one reason a non-bank may still be the right answer when speed, flexibility or lighter security matters more to the client than price.

Policy can change with the funder. A lender's appetite for an industry, a loan size or a security type can shift when its funders' terms change. Policy you knew six months ago may not be policy today.

Why non-banks say yes when banks say no

There are good reasons a bank may decline a deal that a non-bank would consider. The RBA's work on small business finance found that:

• banks are reluctant to lend to small businesses without property security

• it's hard for business owners to borrow more than about $100,000 unsecured from a bank for trading needs

• bank applications are often slow and document-heavy

• unpaid tax debts hurt a business's creditworthiness

Non-banks have built products around those gaps: unsecured and lightly secured lending, faster decisions, assessment based on bank statements and cashflow, and appetite for businesses that don't fit a bank's credit model. It's also why the non-bank market keeps attracting brokers.

None of this means a non-bank is always the better choice. For a well-established business with property to offer and no rush, a bank may be cheaper. A good broker knows both sides.

How to think about fit

When you're working out which lenders might suit a deal, it helps to think in layers.

1. Purpose. What is the money for: working capital, a one-off purchase, an acquisition, refinancing? That narrows the product.

2. Product. Unsecured loan, line of credit, overdraft, property-backed loan, invoice finance? See Business line of credit vs overdraft.

3. Hard policy limits. Time in business, turnover, loan amount, industry, credit history, existing debt. A single one of these usually rules a lender in or out. We cover these in How SME lenders assess a deal.

4. Softer factors. Security, speed, how the lender likes deals presented, and your relationship with the BDM.

The first three layers are where most of the time goes, because the policy detail is spread across dozens of product guides that change regularly. That's the problem Visro was built to solve: enter the scenario once and see which lenders on the panel fit, and why the others don't.

Questions clients often ask

Is a non-bank lender less safe for my client? Your client is the borrower, not a depositor, so the safety question is mostly about the lender's conduct and the loan terms. Read the contract, the fees and the default terms carefully, as you would with any lender.

Will a non-bank loan hurt my client's chances with a bank later? It depends on the bank and the circumstances. Any extra debt and repayments affect future serviceability. Credit enquiries also show on credit files.

Why is the rate higher? Mostly because of funding costs, the risk taken (unsecured, faster, less documentation), and the shorter terms common in this market.

The short version

• Non-bank lenders lend but don't take deposits. That's the core difference from a bank.

• They're regulated, just differently: larger ones report to APRA, and the ASIC Act still applies. Most business-purpose credit sits outside the National Credit Code.

• They're funded by warehouses, securitisation, investors and equity, so pricing and policy can move with their funders.

• They fill real gaps the banks leave, especially unsecured, fast and cashflow-based lending.

• Matching a deal to a lender starts with purpose, product and the hard policy limits.

Sources

• Hall & Wilcox: Non-ADI lenders, you may need to register with APRA

• Brightlaw: Business and investment loans, regulated or not?

• AFIA: Online Small Business Lenders Code

• RBA Bulletin, September 2018: Access to small business finance

This article is general information only. It isn't legal, financial or credit advice and doesn't take into account anyone's circumstances. Lender policies and regulations change, so always confirm details with the lender and the relevant regulator. Visro does not provide credit assistance or financial advice.