Private first mortgage business loans, explained

A first mortgage is the strongest form of property security a lender can hold. When that lender is private rather than a bank, the loan tends to be quicker to arrange and more flexible in how it’s assessed, but it’s generally shorter and priced for that flexibility. This entry explains how private first mortgages work and when they make sense.

What makes a mortgage “first”?

Ranking. The first mortgagee is repaid before anyone else if the property is sold. A private first mortgage either sits over a property with no existing loan, or pays out the existing first mortgage at settlement and takes its place. Either way, the private lender ends up in the strongest position on title — which is why it can often lend more against the same property than a second-mortgage or caveat lender.

Who are private lenders?

“Private lender” covers a spread of organisations: funds that pool investors’ money, specialist non-bank lenders, and companies lending their own capital. What they share is independence from bank credit policy. That lets them:

• decide quickly, often without a committee process;
• accept properties banks find awkward, such as mixed-use, rural-residential or specialised commercial sites;
• lend where tax returns are late, credit files are imperfect or the business structure is complex;
• fund purposes some banks avoid, including tax debt and short-term bridging.

Our non-bank lenders entry and bank vs non-bank comparison cover the wider landscape.

How is a private first mortgage assessed?

Private first mortgage lending runs on three questions:

1. What is the property worth? Established by a valuation the lender instructs.
2. What LVR does the loan represent? The loan (including any capitalised interest) against the valuation.
3. How will the loan be repaid? The exit strategy — sale, refinance, business proceeds — and how believable it is.

Serviceability still matters for longer loans or higher LVRs, but it’s usually weighed alongside the property rather than being the sole test. Past credit issues and ATO debt are considered case by case.

Assessment area	Typical bank approach	Typical private first mortgage approach
Income evidence	Two years of tax returns and financials	Varies; may accept statements or accountant’s letter
Credit history	Strict policy lines	Considered in context
Property type	Standard residential and commercial preferred	Broader range accepted
Decision speed	Days to weeks	Often faster
Term	Long	Short to medium

When does a private first mortgage make sense?

It tends to fit when:

• the property is unencumbered, or paying out the current loan is part of the plan;
• the business needs a larger sum than a second mortgage or caveat would support;
• a bank has declined, is too slow, or won’t lend for the purpose;
• the need is for a defined period, with a refinance or sale to follow.

If you’re unsure whether first, second or caveat suits your situation, you can ask a specialist to compare them for you.

What should you check in the offer?

• Term and extension terms. What happens if you need more time?
• Interest structure. Monthly, prepaid or capitalised — see repayment structures.
• Fees. Establishment, valuation, legal, registration, discharge, and any minimum term.
• Default provisions. What triggers default and how default interest is applied.
• Conditions precedent. Everything that must be satisfied before funds are released.

Commercial loans carry less legal protection than consumer loans, as ASIC notes, so read every clause and get independent advice where anything is unclear.

How do you exit a private first mortgage?

Most private first mortgages end in one of three ways:

• Refinance to a bank or non-bank term loan, once the reason for going private — slow paperwork, a credit blemish, a time-sensitive purchase — has been resolved.
• Sale of the property, or of another asset, with the proceeds clearing the loan.
• Business proceeds, such as a contract payment, an insurance settlement or the sale of the business.

Start preparing the exit on day one. If it’s a refinance, speak to the future lender early about what it will need to see, and give yourself months of margin before the private loan matures.

Terms used in this entry

• Mortgagee — the lender that holds the registered mortgage over the property. Glossary →
• Capitalised interest — interest added to the loan balance instead of paid monthly. Glossary →
• Conditions precedent — everything that must be satisfied before the lender will release funds. Glossary →
• Extension — a lender’s agreement to lengthen the term, usually with additional fees. Glossary →

Every term is defined in the business finance glossary, with links back to the full entries.

Worked example (illustrative)

Illustrative only. The directors of a manufacturing company own their factory outright. They’ve been offered a bulk supply contract that requires new tooling and stock, and they need $900,000 within a few weeks. Their bank is interested but wants updated financials that won’t be ready for two months.

A private first mortgage over the factory provides the funds for a twelve-month term. The exit is a bank refinance once the updated accounts show the new contract’s earnings. The directors confirm the extension terms in writing and ask their accountant to diarise the refinance application well before the loan matures.

Is a first mortgage the right structure for your business?

If you hold property with strong equity and need a significant sum without waiting on a bank, a private first mortgage may be the cleanest option. Starting is simple: a 60-second enquiry, no credit check when you first enquire, and no spraying your details to a list of lenders. A real person studies your situation and calls you. Please give accurate figures for the property’s value, any existing debt and your planned exit so we can match you properly first time.

See if you qualify →