Business Loans vs Private Credit: Which Is Better?
Synopsis
Choosing between a traditional bank loan and private credit depends on your business needs. This guide compares the two funding options, explaining how they differ in cost, approval speed, flexibility, loan terms and regulation, helping Australian business owners make a more informed financing decision.
If you run a business in Australia and require funding, you’ll have likely realised that there are more options available to you now than simply walking into your bank. Private credit has evolved to become a material portion of the lending landscape in Australia and many business owners are weighing it against a traditional bank loan. Which is better? The truth is, neither one is universally better, it depends on how fast you need the money, how complicated your business model is and how much you’re willing to pay for speed and flexibility. Here’s how the two compare.
What Is Private Credit?
Private credit is loans that come not from a bank, building society or credit union but instead from non-bank lenders. Institutional investors, super funds and increasingly retail investors (investing into private credit funds) provide funding to these lenders in exchange for a higher return than they could expect on the cash or bond deposit.
Australia’s private credit market has undergone rapid growth, expanding from an estimated A$100 billion in assets under management at the 2024 stage to over A$200 billion as of 2025, according to ASIC's own review of the sector. About half of this is related to property lending, and the other half is in corporate asset-based lending to businesses.
How Private Credit Works?
Private credit lenders raise money from investors and lend it directly to businesses for purposes that banks deem too complicated, too dynamic or too marginal. Unlike banks, these non-bank and unregulated lenders aren’t in the same boat when it comes to capital and prudential requirements, meaning they can use more lenient measures to determine credit risk if they’re less pressured on how they assess or structure a loan.
Freedom comes with a price. While private lenders can offer better turnaround times, they’ve also traditionally charged higher interest rates than banks, and with loan terms usually shorter means the refinancing costs come around more quickly.
Who Uses Private Credit?
Private credit often fits mid-sized companies that are too complicated or bespoke for an average small-business bank loan, but not large enough to attract institutional banking facilities. Businesses requiring immediate deal settlement, high-level property transactions, or business acquisitions where bank approval (which can take up to 60-days) simply doesn’t work are also a draw in this type of deal.
What Are Bank Loans?
A bank loan is the finance granted by a licensed deposit-taking institution, major banks, regional banks, building societies or credit unions. These loans are highly regulated and have more standardised terms, documentation, and credit assessment processes than private credit.
How Bank Loans Work
As part of their business model, banks are regulated; they can only lend out money that others have deposited with them. This is among the regulations that keep bank loans at a lower interest than private credit, but it also explains why they take longer to approve and require more paperwork.
Lenders approve loans based on different timelines and loan complexities. Major banks often process straightforward small business loans within weeks yet there can be considerable time delays when it comes to more complex or larger facilities, in some cases up to 2-3 months once due diligence and security registration are complete as well as receiving internal credit committee sign-off.
Who Uses Bank Loans?
Bank loans are go-to options for most small businesses and sole traders, particularly where the funding requirement is straightforward (an overdraft, term loan or equipment finance) because the business will fit in a bank’s box of standardised lending criteria and there isn’t an urgent need for funds.
Key Differences Between Bank Loans and Private Credit
| Feature | Bank Loans | Private Credit |
| Cost | Lower interest rates | Higher interest rates and fees, reflecting greater flexibility and risk |
| Speed | Weeks for simple loans, often longer for complex deals | Faster approvals, often within days or even 24–72 hours |
| Flexibility | Standardised products and lending criteria | Tailored loan structures and more flexible terms |
| Loan Terms | Typically longer repayment terms available | Often shorter or customised repayment periods |
| Regulation | Heavily regulated with strong consumer protections | Less regulated than banks, though still subject to financial laws |
| Best Suited To | Standard, straightforward borrowing needs | Complex, time-sensitive, or non-standard financing requirements |
Selecting The Ideal Financing For Your Business
There is no simple answer to which approach is better, it depends on your specific business scenario. If your business aligns with a standard lending profile and you aren’t in an immediate need for cash, a bank loan will generally be the lower price. For the most common uses, small loans for equipment, cash management capabilities or a simple expansion, banks are the logical default solution because of lower rates and better consumer protections.
If you are in a hurry to raise funds, have a business that is outside the typical bank lending box or are developing something that a bank deems too complicated or high-risk, private credit can be an option, only if you go into it with your eyes wide open about what it will cost.
Assessing Your Financial Profile
Before deciding on either way, you might wanna be honest about a few things: how urgent do you really need the funds, can your business afford to pay high-interest rates if opting in for the private credit route, and does the loan length match with your current cash flow and future growth plans? For example, private credit term is shorter for a bridging need but if you haven’t planned your refinance or repayment at the end of that term, that’s a real problem.
Cost vs Speed Trade-Offs
This is really the crux of the decision. Bank lenders are cheaper but can lose on speed & flexibility. Private credit wins from speed and flexibility but at a genuine cost premium, and most frequently more fleeting phrases with tighter covenants.
Keep in mind, especially with private credit, that the headline interest rate is not the whole story. Because fees, covenant structures and hence exit or refinancing terms can add significantly to the daily dollar cost of the loan, it’s always a good practice to ask somebody credible (a lender or broker) to walk you through the total cost of capital vs. just providing you with one rate price upfront.
An Expanding But Untamed Market
This is where it helps to understand the wider context. Non-bank lending, including private credit has continued to expand rapidly as a source of business finance although it remains a relatively small share of overall financial system lending according to the Reserve Bank of Australia (RBA). And ASIC has also highlighted that Australia’s private credit market lacks the transparent pricing data and uniform disclosure standards associated with bank lending, and is in a state of ‘active review’ as part of its surveillance work around the sector.
That doesn’t mean private credit is inherently unsafe, as arrears among non-bank business lenders have been said to remain contained despite the sector’s rapid ascent. However, it does mean that borrowers, along with the advisers working on their behalf, have to roll up their sleeves before signing on the dotted line as there will not always be an easily verifiable way of pulling out the terms from one private lender and comparing them against another’s.
The Bottom Line
Business loans and private credit are not competitors trying to do the same job, they serve entirely different purposes. If you are looking for the cheapest option and your business meets typical standards, then a bank loan is generally the best choice. Private credit finds its place only when at least one of your business needs speed, flexibility or a non-standard deal structure is more important than getting the lowest possible rate.
It is not wise to take a side without gauging your own scenario first. It comes down to what your business really needs, speed, cost assurance, flexibility or aligning the need with the lender type specifically set up to deliver it. If you are unsure which category your business falls into then consulting an accountant, finance broker or business adviser is also worth it.
Disclaimer: This article does not contain financial advice and is for general information only. If considering different lenders or loan structures, please speak to a qualified accountant, financial adviser or licensed finance broker about your business circumstances.
At Inspirepreneurs Magazine, covering entrepreneurship, business failures, and the human stories behind the world's most ambitious founders. She writes at the intersection of strategy and storytelling.
