Private Lending Growth Opens Doors and Risks for Brokers

According to the Mortgage & Finance Association of Australia (MFAA), private credit in Australia is now estimated at around $40 billion, accounting for approximately 2.5% of total business debt. While still a small share of the overall market, the sector has expanded rapidly, with growth outpacing broader business lending by around two percentage points in recent years.

Anja Pannek, CEO of MFAA, emphasized the pivotal role brokers play in this shift. "Brokers are leveraging private lending solutions to address specific client needs, such as non-conforming loans or funding gaps for property transactions," Pannek stated. "As traditional lenders pull back due to regulatory and economic pressures, demand for credit hasn't gone away—and that's where the flexibility of private lending is proving its value."

However, the rapid expansion of private lending is not without challenges. The sector operates under lighter regulatory obligations, prompting heightened oversight from the Australian Securities and Investments Commission (ASIC). In February, ASIC released a discussion paper on the evolving dynamics between public and private capital markets, noting the growing presence and risks associated with private credit. This followed earlier enforcement action against a private lender for circumventing lending laws, signaling greater regulatory focus.

For brokers, this means navigating a complex landscape where due diligence and compliance are paramount. While private lenders offer more flexible terms and faster approvals, brokers must ensure that their clients fully understand the terms and risks associated with these loans. Additionally, staying abreast of regulatory developments and maintaining transparent communication with clients are essential to mitigate potential risks.

In conclusion, the growth of private lending in Australia offers brokers new avenues to serve their clients' financing needs. However, this opportunity comes with the responsibility to navigate the associated risks carefully, ensuring that both brokers and their clients benefit from the flexibility and accessibility that private lenders provide.