Rise of Private Credit in Financing Aussie Businesses
Private credit, lending provided by non-bank institutions, has become one of the fastest-growing sources of finance for Australian businesses.
Once seen as a niche option, it is now playing a significant role in funding working capital, expansion and debt refinancing, particularly for small and mid-sized enterprises (SMEs) that face tighter lending conditions from the major banks.
Empirical Legal helps business owners assess financing options and provides clear legal advice. We guide you through the legal and commercial considerations of private credit arrangements, ensuring you understand the obligations, risks and protections available before committing.
Summary
Track the rapid growth of private credit.
Australia’s private credit market has surged to $188 billion, growing over 60% since 2017, driven by SME demand for faster, more flexible funding.Understand why SMEs are turning to private lenders.
Tighter bank lending, quicker approvals and diversified funding sources are making private credit an attractive alternative for many businesses.Identify the sectors benefiting most.
Construction, agriculture, professional services and technology start-ups are among the biggest users of private credit for flexible and timely financing.Assess the risks before committing.
Higher interest costs, stricter security requirements and potential prepayment penalties mean directors must weigh private credit terms carefully.Watch for increasing regulatory oversight.
ASIC and the RBA are scrutinising private credit providers to ensure transparency, fair dealing and robust risk management.Compare private credit with bank lending.
While banks still dominate business funding, private credit now holds a 16% share and is poised to grow further if bank criteria stay tight.Follow practical steps before signing a deal.
Review total costs, vet the lender’s track record, clarify security terms, plan your exit and seek legal advice to protect your business.
1. Private credit is growing rapidly
The Reserve Bank of Australia (RBA) estimates the Australian private credit market is now worth around $188 billion, having grown by more than 60% since 2017 (RBA, Growth in Global Private Credit). Globally, private credit has grown even faster, more than doubling in the past decade to reach over US$1.6 trillion.
In Australia, the growth is driven by demand from SMEs seeking faster approvals, customised lending terms and alternatives to bank loans in a higher-interest environment.
Growth of private credit in Australia:
2017: estimated market size of A$117bn
2020: estimated market size of A$145bn, +24% compared to 2017
2023: estimated market size of A$188bn, +60% compared to 2017
2. Why businesses are turning to private credit
Three key factors explain the rise:
Tighter bank lending: Regulatory capital rules have made some bank loans harder to secure, especially for businesses with irregular cashflows or minimal security.
Speed and flexibility: Private lenders often approve loans faster and tailor repayment structures.
Diversification of funding: Businesses want more than one funding channel to avoid over-reliance on banks.
The RBA notes that SMEs with annual turnover under $50 million are the biggest users of private credit, making up over 60% of the market (RBA, Growth in Global Private Credit).
3. The sectors benefitting the most
Private credit is used across the economy but certain industries feature prominently:
Construction: often needing bridging finance for projects
Agriculture: seasonal funding to cover input costs before harvest
Professional services: to smooth cashflow during long client billing cycles
Technology start-ups: to accelerate product development without equity dilution
These sectors tend to value faster access to funds and flexibility on covenants compared to traditional bank products.
4. Risks directors should consider
While private credit offers advantages, it can also carry higher interest rates and stricter enforcement clauses.
Key risks include:
Higher cost of capital: Private lenders often charge 2-5 percentage points above comparable bank loans.
Security requirements: May involve personal guarantees or charges over business assets.
Limited refinancing options: Exiting early can be expensive if prepayment penalties apply.
The Australian Securities and Investments Commission (ASIC) has warned that some private credit arrangements, particularly those with complex fee structures, may not be well-understood by SME borrowers (ASIC, Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets).
5. Regulatory attention is increasing
The growth of private credit has caught the attention of both the RBA and ASIC. While most private credit is provided to wholesale clients (outside standard consumer lending rules), regulators are monitoring the market to ensure fair dealing and avoid systemic risks.
In 2023-24, ASIC reviewed multiple private credit providers and emphasised the need for transparent disclosure of fees, default provisions and enforcement rights (ASIC, Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets). The RBA has flagged potential vulnerabilities if private credit expands too quickly without robust risk management.
6. Comparing private credit to bank lending
While banks remain the dominant source of business funding, private credit is growing its share. For context, total business credit in Australia is about $1.2 trillion, meaning private credit now accounts for roughly 16% of the market (RBA, Growth in Global Private Credit).
In 2023, business credit sources in Australia totalled AUD 1,200 billion. Of this, bank lending accounted for AUD 1,012 billion, representing 84% of the market. Private credit made up the remaining AUD 188 billion, or 16% of the market.
This private credit share is expected to rise further if banks maintain conservative lending criteria and more institutional investors allocate capital to private credit funds.
7. Practical tips for SMEs considering private credit
If you are exploring private credit as a funding option:
Compare total cost, not just interest rates: Include fees, covenants and prepayment penalties.
Check the lender’s track record: Look at their experience in your industry and their enforcement history.
Understand security requirements: Be clear on what personal or business assets are at risk.
Plan your exit strategy: Have a clear refinancing or repayment plan.
Seek legal review before signing: Ensure the contract is clear, compliant and aligns with your business objectives. Empirical Legal can assist with our fixed fee dcoument
Key takeaway
Private credit is no longer a fringe option for Australian businesses. Its flexibility, speed and growing market presence make it an important part of the funding landscape, especially for SMEs facing tighter bank lending. However, the benefits come with risks that must be managed carefully.
Empirical Legal is a corporate advisory and technology law firm for startups, scaleups and SMEs.
We combine legal, technology, and business experience and expertise to deliver practical, actionable advice and solutions.
If you are considering private credit, Empirical Legal can help you understand the terms with our document review offering, negotiate better protections and ensure your financing decision supports long-term business success.
Reach out to Empirical Legal today.