When a Bank Won't Finance Your Commercial Property Purchase
Private funding provides capital from non-bank sources when you need to purchase a commercial property but can't secure traditional bank approval. These lenders, often family offices or high net worth individuals, assess deals on merit and security rather than rigid bank criteria.
Grantville and the surrounding Bass Coast region see regular commercial property transactions where private funding makes sense. A buyer looking at a mixed-use building on the Bass Highway might find banks hesitant due to the property's unconventional tenant mix or their own business structure, even when the deal itself is sound. Private lenders fill that gap, though at a cost that reflects the faster approval process and increased flexibility.
How Private Lenders Assess Commercial Property Deals
Private lenders focus on the property's value and your exit plan rather than your income documentation or credit history. They want to know what the asset is worth, how much you're borrowing against it, and how you'll repay or refinance within the loan term.
The loan to value ratio drives most private funding decisions. A commercial property purchase at 65% LVR will attract more competitive private loan interest rates than one at 75% LVR, because the lender's security position is stronger. Consider a buyer purchasing a retail premises in Cowes with a clear valuation and 35% deposit. That scenario typically receives fast approval from private lenders, often within days, because the risk is contained and the asset is readily saleable if needed.
Unlike banks, private lenders won't require detailed business financials or two years of tax returns. They will, however, want a registered valuation and evidence that you can execute your exit plan. Most private commercial finance is structured as a short term loan, usually six to eighteen months, with the expectation that you'll refinance to a bank or sell the property within that window.
Interest Rates and Costs for Private Commercial Loans
Private lending rates sit well above bank rates, reflecting the speed and flexibility these lenders provide. Variable interest rates for private commercial finance typically range between 8% and 15% per annum, depending on the LVR, property type, and borrower's experience.
A private loan application approved within a week carries different pricing than a bank loan that takes six weeks and might still decline. You'll also pay an establishment fee, usually between 1% and 3% of the loan amount, and sometimes an exit fee when you repay. Legal costs for private funding can run higher than traditional finance because the loan agreements are individually negotiated rather than standardised.
In our experience, buyers underestimate the total cost of holding private funding. A twelve-month private loan at 10% per annum on a loan amount of $500,000 costs $50,000 in interest alone, before fees. If your exit strategy depends on refinancing to a bank within six months, make sure that timeline is realistic given your business circumstances and the property's income profile.
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Why Location Matters for Private Lenders in Grantville
Private lenders prefer commercial properties in locations they understand and can liquidate if required. Grantville's position on the Bass Highway between Melbourne and Phillip Island gives commercial properties here reasonable liquidity, particularly those with tourism or services-related tenancies.
A commercial building near the Grantville foreshore or along the main road through town will generally attract more flexible private lending terms than a standalone rural property with limited alternative uses. Private money lenders assess how quickly they could sell the asset in a distressed scenario, and properties in established commercial precincts hold that appeal.
If you're looking at alternative security, such as using a residential property in Coronet Bay or San Remo to secure a commercial purchase elsewhere, some private lenders will consider that structure. The residential property provides easier valuation and sale, which offsets risk for the lender even though it's not the asset being purchased.
When Private Funding Makes Sense and When It Doesn't
Private commercial finance works when you have urgent finance needs or face a situation where banks won't lend, but you have genuine equity and a realistic exit plan. It doesn't work as a long-term hold strategy because the interest rate and fees erode returns quickly.
As an example, a buyer purchasing a warehouse in Koo Wee Rup for their own business might need private bridging finance while their previous business premises sells. The six-month private loan lets them secure the property now, then refinance to a bank once the sale settles and they can demonstrate business income from the new location. The private funding costs are justified by the commercial benefit of securing the right property at the right time.
Private funding doesn't make sense when your exit strategy relies on uncertain events. If you're hoping property values will rise enough to refinance at a lower LVR, or banking on a tenant signing a lease so a bank will lend, you're using expensive capital to speculate. Private lenders themselves may decline those scenarios because the alternative lender community is smaller than you'd think, and they avoid deals without clear paths to repayment.
Structuring Your Application for Fast Private Approval
Getting quick private funding approval requires presenting the deal clearly from the start. Have a registered valuation, a written exit strategy, and evidence of your deposit funds ready before approaching a mortgage broker in Grantville who works with private lenders. The faster you can answer their questions, the faster they can issue terms.
Private lenders want to see that you've thought through the deal, not just the purchase. If you're buying a commercial property to renovate and on-sell, show comparable sales that support your end value. If you're refinancing to a bank in twelve months, explain what needs to happen between now and then to make you bankable, whether that's demonstrating income, completing improvements, or securing a lease.
The private loan LVR you request should leave room for market movement. Borrowing at 70% LVR when you could manage 65% saves a small amount of deposit today but reduces your options if the property value softens or your exit takes longer than planned. Conservative LVR gives you breathing room and often secures better private funding terms because the lender sees you have skin in the game.
What Happens If Your Exit Strategy Doesn't Go to Plan
Most private funding terms allow extensions, but they come at a cost. Lenders may charge an extension fee and increase the interest rate for the additional period, because the deal is now outside the original risk assessment.
If you can't repay or refinance when the private funding term ends, the lender has the right to enforce their security and sell the property. That process is slower and more costly than simply extending the loan, so lenders usually prefer to negotiate, but you'll be doing so from a weak position. The flexible solutions that made private funding attractive at the start disappear once you're in default.
The best approach is to build buffer into your exit plan from the beginning. If you think you need twelve months to refinance, structure the private loan for eighteen months. The additional interest cost is small compared to the risk of running out of time and having to accept unfavourable extension terms or, worse, a forced sale.
Finding the Right Private Lender Through a Broker
The private lending market includes everyone from structured family offices to individuals with capital to deploy. Not all private lenders operate at the same level of professionalism, and terms can vary widely for the same deal.
Working with a broker who has established relationships across the private funding market means you're more likely to access private funding options from lenders across Australia who suit your specific scenario. A local buyer purchasing a commercial property in Bass might benefit from a Melbourne-based family office that understands the Phillip Island tourism corridor, while someone with a more complex structure might need a specialist lender who works with self-managed super funds or trusts.
A broker can also help you avoid lenders whose terms include problematic clauses around early repayment, extension rights, or default interest. Private loan agreements aren't standardised like bank contracts, so having someone review the terms before you sign protects you from overreach later. If you're comparing investment finance from multiple private sources, small differences in fees and exit provisions can have material impact over even a short funding term.
Situations where you need to purchase a commercial property quickly, or where your circumstances don't fit bank policy, don't mean you're out of options. Private funding serves a genuine purpose when used strategically and repaid as planned. If you're facing a commercial opportunity in Grantville or the surrounding region and need to move faster than a bank allows, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is private funding for commercial property purchases?
Private funding provides capital from non-bank sources such as family offices or high net worth individuals when you need to purchase a commercial property but can't secure traditional bank approval. These lenders assess deals based on property value and exit strategy rather than income documentation or credit history.
How much do private commercial loans cost compared to bank loans?
Private lending rates typically range between 8% and 15% per annum, well above bank rates, plus establishment fees of 1% to 3% of the loan amount. The higher cost reflects faster approval, usually within days, and greater flexibility around borrower circumstances.
What loan to value ratio can I get with private commercial funding?
Most private lenders will fund commercial property purchases up to 65% to 75% LVR depending on the property type and location. Lower LVR deals typically attract more competitive interest rates because the lender's security position is stronger.
How long does private commercial funding last?
Private commercial finance is typically structured as a short term loan of six to eighteen months. Lenders expect you to refinance to a bank or sell the property within that window, and extensions are available but usually come with additional fees and higher interest rates.
What do private lenders want to see in an exit plan?
Private lenders want evidence of how you'll repay or refinance within the loan term, such as selling another property, securing bank finance once income is established, or completing improvements that increase value. The exit strategy should be specific and realistic, not dependent on uncertain market movements.
