Quick answer
Red flags in private lending include large fees demanded before approval, pressure to sign immediately, no independent legal advice, vague or missing total costs, unusually broad default clauses, security over more property than needed, discouraging your own solicitor, guaranteed approval claims and reluctance to put terms in writing. A reputable lender will welcome your questions.
Key points
- Be wary of large fees before you have an approval
- Insist on independent legal advice and written terms
- Check that security is proportionate to the loan
- A good lender welcomes questions and scrutiny
Most private lenders are professional operators who lend responsibly against property and treat borrowers fairly. They have to, because their business depends on loans being repaid, and that’s easiest when the deal is sound from the start. But the market also has a small number of operators who rely on urgency, confusion and fine print. Borrowers under pressure are exactly who they target.
These twelve warning signs won’t catch everything, but they’ll catch most problems before they become expensive.
1. Large fees before approval
Some legitimate costs, such as a valuation, may be payable before a loan settles. But be cautious of large “application”, “commitment” or “processing” fees demanded before you have a written approval, particularly if they’re non-refundable. Ask what every fee is for, when it’s due and whether you get it back if the loan doesn’t proceed.
2. Pressure to sign immediately
Urgent deals move fast, and a lender may reasonably want a quick decision. But “sign now or the offer disappears” without time to read the documents or see a solicitor is a pressure tactic. A reputable lender will give you time to get advice, even if it’s only a few hours.
3. No independent legal advice
Most reputable private lenders insist that you and any guarantors receive independent legal advice before signing. A lender that doesn’t require it, or discourages it, may not want you to understand what you’re signing.
4. Discouraging your own solicitor
Similar, but worse: suggesting you use the lender’s solicitor, or a solicitor the lender nominates, for your “independent” advice. Independent means independent. Choose your own.
5. No clear total cost
You should be able to get a clear answer to one question: how many dollars will I pay in total if I repay on the expected date? If a lender can’t or won’t give that figure in writing, be wary. Our letter of offer checklist explains how to work it out.
6. Unusually broad default clauses
Every loan has default clauses. Watch for ones that let the lender call a default for minor or subjective reasons, such as a vague “material adverse change” with no definition, or that impose large default charges from day one of any breach. Ask your solicitor whether any clause looks one-sided.
7. Security beyond what’s needed
A lender asking for security over several properties for a modest loan, or for a general security interest over everything you own when property already covers the loan comfortably, is taking more than it needs. Over-securing makes it harder to refinance, sell or borrow elsewhere. Ask why each security is required.
8. Guaranteed approval
Responsible lending, even for business loans, means assessing the deal. “Guaranteed approval” or “no questions asked” is marketing, not lending. At best it’s exaggeration. At worst it’s a sign the lender profits more from defaults than from repayments.
9. Terms that change at the last minute
Your letter of offer said one thing. The final documents, arriving an hour before settlement, say another: a higher fee, a shorter term, an extra guarantor. Don’t sign under pressure. Ask for an explanation and, if necessary, walk away or delay.
10. Reluctance to put things in writing
“Don’t worry, we’ll extend if you need it.” “That clause never gets used.” If it matters, it should be written down. Verbal reassurances count for very little when a dispute arises.
11. A focus on your property, not your exit
All private lenders look at the property. But a lender that shows no interest in how you’ll repay the loan, and seems comfortable with an exit that’s obviously unrealistic, may be lending with the property in mind rather than the repayment. That’s a lender that may be prepared to profit from enforcement.
12. Unclear identity
You should know exactly who is lending: the company name, ABN, and who funds its loans. If the lender’s identity is vague, it uses multiple names or you can’t find a registered business behind it, stop and check before going any further.
Green flags worth noticing
The opposite signs are just as useful. A lender that explains its fees before you ask, puts every term in writing, insists on independent advice, asks hard questions about your exit and is happy for your accountant to call is behaving the way a sound lender should. So is one that tells you a smaller loan or a different property would suit you better, even though it earns less. Those habits usually signal a lender that wants the loan repaid on time, which is exactly what you want too.
What to do if you spot a red flag
- Pause. Even under deadline pressure, an hour to check can save months of trouble.
- Ask questions in writing. Email the lender and ask it to explain the issue.
- Get legal advice. Have your own solicitor review the offer and documents.
- Check the lender. Search ASIC registers and ABN Lookup, and look for complaints.
- Get a second opinion. Talk to another lender or to us.
- Walk away if needed. A missed deadline is painful, but a bad loan can cost far more.
Your protections
Business purpose loans sit outside most consumer credit rules, but you’re not without protection. Small businesses are covered by unfair contract term laws, which apply to many standard form contracts. Laws against misleading and deceptive conduct apply to everyone. Some lenders are members of the Australian Financial Complaints Authority, which handles certain small business disputes. ASIC publishes guidance on disputes about commercial loans.
How we work
We think borrowers deserve to see a deal clearly before they sign it. When we introduce a lender, we:
- explain the offer in plain language, including total cost in dollars
- encourage you to have your own solicitor review every document
- only introduce lenders who use proper documentation and require independent advice
- don’t send your file to a long list of lenders
- tell you honestly if we think a deal doesn’t make sense
A worked example
An owner came to us after receiving an offer elsewhere that required a non-refundable fee before approval, asked for security over both his home and an investment unit for a loan that the unit alone covered, and gave him two hours to sign without seeing a solicitor. We introduced a lender that took security over the unit only, charged no fees before approval and gave him two days to obtain advice. He settled within the original deadline anyway.
Ask us for a second opinion
If you have an offer you’re unsure about, or you’re starting fresh, tell us what you need. There’s no credit check when you first enquire, and your details aren’t sent around the market. Accurate answers help us find a lender that fits.
Start your enquiry, or read about who private mortgage lenders are first.
Frequently asked questions
Are private lenders regulated?
Business purpose lenders generally aren't required to hold an Australian credit licence, but they're still bound by general laws, including unfair contract term protections for small businesses and laws against misleading conduct.
Should I pay a fee before I get an approval?
Be cautious. Some legitimate costs, like valuations, may be payable upfront, but large fees before any written approval are a warning sign. Ask what each fee is for and whether it's refundable.
What if I've already signed something I'm worried about?
Speak to a solicitor immediately. Depending on the terms and timing, there may be options, and some disputes can go to the Australian Financial Complaints Authority.
How do I check a lender is legitimate?
Look up its company and ABN, check for complaints, ask who funds its loans, and confirm it uses reputable solicitors. A legitimate lender will answer these questions.