How Does a Private Lender Decide Whether to Approve a Property Loan?

A private lender approves on four things: the security, the loan-to-value ratio, the purpose, and the exit. The exit is the one we test first, because a loan with no clear way to be repaid does not get made, no matter how good the property looks.

Most lenders will not tell you how they think. Here is the order we actually work in, so you can package a deal to pass.

What do private lenders look at first?

The exit. Before pricing or paperwork, we ask one question: how does this loan get repaid? If the answer is a sale or a refinance that is real and on track, we keep going. If it is vague, we stop there.

A short-term loan lives or dies on the exit. A sale needs a saleable property and enough headroom after selling costs. A refinance needs a lender likely to take it out, and a borrower who will qualify. We would rather find a weak exit on day one than at month nine.

How do private lenders decide how much to lend?

By the loan-to-value ratio against a real valuation. A first mortgage is usually capped around 65 to 70% of value, less for a second mortgage or a specialised property. The equity below the loan is the safety margin.

The LVR is not a target, it is a limit. On bridging deals where interest is capitalised, that capitalised interest sits inside the LVR, so the loan is measured on the full amount owing at the end, not just the day-one advance.

What we assess, and the question behind it:

• Exit: how does this loan get repaid, and is that real?
• Security: is the property sound and straightforward to value?
• LVR: is there enough equity below the loan to protect it?
• Purpose: is it a genuine business or investment purpose?
• Borrower: company or trust, clean searches, guarantees in place?

Why does the security type change the answer?

Because some properties are easier to value and sell than others. A standard metro house or a well-located commercial property supports a higher LVR than rural land, specialised assets or something hard to move.

Location and type drive both how much we lend and how fast we can move. A property that is quick to value and easy to sell is worth more to the structure than the headline number suggests.

What gets a deal declined?

No credible exit, an LVR that leaves no margin, a purpose that is really consumer lending, or a security we cannot value or sell. Any one of these is enough.

A fast, clear no is part of the service. If a deal cannot be made to work, the useful thing is to say so quickly with the reason, so the broker can restructure it or take it elsewhere.

Worked example: how the four tests play out

Illustrative example. Figures are indicative and do not represent an actual client.

A trust wanted to buy an industrial warehouse for $5,000,000.

• Exit: refinance to a bank once the tenancy and financials were seasoned. Credible.
• Security: a standard industrial property, easy to value. Sound.
• LVR: a $3,000,000 first mortgage at 60% of value. Comfortable margin.
• Purpose: investment, held in a trust. Genuine.

All four passed, so the deal was approved and settled quickly. Change any one, a vague exit or a 90% LVR, and the answer changes.

Broker takeaway

Package the exit first, then the security, the LVR and the purpose, and your deals will move faster. Send us a scenario and we will tell you honestly whether it passes all four, and what would need to change if it does not.

Vía Private is an Australian non-bank private credit lender providing property-secured commercial loans to companies and trusts for business and investment purposes across NSW, VIC, QLD and the ACT. All lending is subject to credit approval and valuation. General information only, not financial or credit advice.