Private first mortgage business loans

When a private first mortgage is the right tool

Most owners think of a first mortgage as something a bank provides over twenty or thirty years. A private first mortgage is a different animal: shorter, faster and assessed mainly on the property and the plan to repay.

It tends to be the right tool in three situations:

• The property is unencumbered. There’s no existing loan, so the new lender simply takes first position. This is often the cleanest and quickest property-secured structure available.
• The current lender needs to be paid out. Perhaps the bank has called in a facility, won’t consent to a second mortgage, or can’t approve new funds in time. A private first mortgage refinances it and adds the new money in one step.
• The need is large relative to the equity. Being in first position lets a lender offer a larger amount against the same property than it could in second position.

How the process runs

Step	What happens	Where time can slip
1. Enquiry and call	Amount, purpose, property, exit	Incomplete property details
2. Indicative terms	Specialist outlines the likely structure	Unclear exit
3. Valuation	Lender’s valuer confirms value	Access, commercial complexity
4. Payout request	Existing lender asked for a payout figure	Slow outgoing lender
5. Documents and advice	Loan documents signed	Unavailable signers
6. Settlement	Existing loan paid out, new mortgage registered, funds released	Late payout confirmation

When the property is unencumbered, steps 4 and 6 are simpler, and up to $5m is possible within 24–48 hours. When a bank is being paid out, the outgoing lender’s speed becomes the main variable — request the payout letter as early as you can.

What the lender will look at

The property. Type, location, condition and marketability. A well-located house or standard commercial building supports a higher loan-to-value ratio than a specialised or rural property. Test your numbers in the equity and LVR calculator.

The purpose. What the money is for, with evidence. Business purposes only.

The exit. How the loan will be repaid at the end of the term — typically a refinance to a bank once the business’s financials catch up, a property sale, or trading cash flow over a longer term.

The history. Past credit issues, ATO debt and arrears are considered case by case. Explaining them upfront saves time.

Want a quick read on your situation? Tell a specialist in 60 seconds — no credit check to ask.

Private first mortgage versus the alternatives

• Versus a second mortgage: a second mortgage leaves your bank loan in place, which is ideal when that loan is on good terms. A private first mortgage makes more sense when the bank loan is the problem or doesn’t exist.
• Versus a bridging loan: a bridge is built around one specific exit event. A private first mortgage can be used the same way, but can also run longer.
• Versus a bank refinance: a bank will usually cost less over time but may take weeks and need full financials. Many owners use a private first mortgage as a bridge to that bank refinance.

Costs to understand before you commit

Private first mortgages generally cost more than bank loans because they’re faster, more flexible and accept situations banks won’t. Establishment, valuation and legal fees are common, and some loans have minimum terms or exit fees. The meaningful comparison is total dollar cost against what the loan achieves — clearing a default, capturing a deal, stopping ATO interest. Enter every figure from your offer into the loan cost calculator.

If you plan to refinance to a bank within a year, ask specifically about early repayment. The cheapest-looking offer can become the most expensive one if it penalises the exit you’re planning.

An illustrative example

An Adelaide food manufacturer’s bank reviews its facility after a difficult year and gives notice that it won’t renew. The directors own the factory, and the debt is well under half its value. A private first mortgage pays out the bank and adds working capital for a new supply contract, with a planned refinance back to a mainstream lender after two strong years of financials. Illustrative only.

Questions to settle before you sign

A private first mortgage is a serious commitment over a property you care about, so it’s worth having clear answers to a few questions before you proceed:

• What is the full term, and what happens at the end of it? If a refinance is the exit, what would need to be true — two years of lodged financials, cleared ATO debt, a lower LVR — for a bank to take the loan over?
• How is interest paid? Monthly, prepaid for a period, or capitalised and repaid at the end? Each changes your monthly cash flow and the final amount owed.
• What fees apply if the loan is repaid early, or runs late? Know both numbers in dollars.
• Who needs to sign? Every registered owner signs the mortgage. If a spouse or relative is on the title and isn’t part of the business, they’ll need independent legal advice before signing.
• Is the loan covered by small business protections? Standard-form small business loan contracts are covered by the unfair contract terms laws that ASIC administers, which is worth knowing when you read the terms.

Good specialists welcome these questions. If you don’t get straight answers in dollars, keep asking until you do.

Talk to someone who’ll look at the whole picture

A private first mortgage can turn a stuck situation into a solved one, fast. There’s no credit check to enquire, your file isn’t shopped around to a crowd of lenders, and a real specialist works through the property, the purpose and the exit with you. Please enter your property details and existing loan balances accurately — it’s the quickest way to an answer you can rely on. See if you qualify.