Quick answer
A private mortgage for a business borrower with bad credit is a first or second mortgage decided on the property, the equity and the exit rather than the credit score. Defaults, judgments and tax debts are considered case by case, and there is no credit check when you first enquire.
Key points
- Decided on property, equity and exit, not credit score
- Defaults, judgments and tax debts considered case by case
- No credit check when you first enquire
- A believable exit matters more than a clean file
- Credit score
- Not the deciding factor
- Looks at
- Property, equity, exit
- Speed
- Days; same day possible for first mortgages
- Purpose
- Business only
Why credit matters less in private lending
A bank lends on the strength of your income and credit history. If either looks weak, the answer is usually no, because the bank is relying on you to repay month after month for years. A private mortgage lender is relying on something different: the property it holds as security and the event that will repay the loan.
That is why a business owner turned down by a bank for a default, a judgment or a tax debt can still be approved by a private lender. The question changes from “does this borrower look reliable on paper?” to “does this property cover the loan, and is the exit believable?”
What a private lender does look at
The equity. How much is owed against the property compared with what it is worth. A comfortable buffer matters more than anything else.
The property. Location, type and how easily it can be sold.
The exit. How and when the loan will be repaid, and what evidence there is.
The purpose. What the money is for. Business purposes only, and a purpose that makes sense.
The story. Why credit problems occurred and whether the cause is behind you. A lender will not penalise a bad patch that is clearly over.
Our guide to the three questions every private lender asks goes through these in detail.
Common credit problems and how they are viewed
- Defaults and arrears. Seen as a signal, not a verdict. Recent and unexplained ones are harder than old, explained ones.
- Judgments and court orders. The lender will want to know whether they are settled and whether the loan will clear them.
- Tax debts. Often a reason to borrow rather than a barrier. Clearing an ATO debt can improve the borrower’s position. See ATO debt.
- Bankruptcy history. Depends on how long ago and what has changed.
- No credit history. Not a problem for a property-secured loan.
How to improve your chances
- Lead with the property. Show the equity and the saleability.
- Explain the credit event. A short, honest note beats silence.
- Evidence the exit. An agent appraisal, an indicative bank approval or a contract.
- Borrow a sensible amount. A conservative loan against the property reads better than a stretched one.
- Be clear on purpose. A specific business reason is stronger than a vague one.
The trade-offs
Bad credit can cost more. A lender may charge higher fees, shorten the term or ask for a larger buffer of equity. It may also steer you to a short-term loan, since longer-term lenders generally review credit and may decline. If your goal is a cheaper longer-term loan once your credit recovers, a short-term loan can be the bridge. See our comparison of short-term and long-term private loans.
Protecting yourself
A lender willing to look past your credit file is not an excuse to skip your own checks. Read the letter of offer carefully, understand the total cost in dollars and confirm the lender’s details. Our letter of offer checklist and red flags guide help.
First or second mortgage with bad credit
Both are possible. If you have an existing mortgage you want to keep, a second mortgage borrows against remaining equity. If your existing loan is in arrears or expiring, a private first mortgage can pay it out. See the blended cost of a second mortgage for how to compare them.
A worked example
A plumbing contractor has a default on his file after a dispute with a supplier and an unpaid tax debt that is attracting penalties. A bank has declined him twice. He owns a family home with a modest mortgage, worth well over the amount he needs. A private lender takes a second mortgage, assessing the house itself rather than his credit score, and the loan clears the tax debt in full. With the debt gone and the default explained, he refinances to a bank twelve months later. The credit file did not decide the outcome. The security and the exit did.
What a good lender will not do
A good lender will not promise approval before it has looked at the property, will not ask for large fees before an offer is issued and will not pressure you to sign quickly. If you are asked to pay thousands upfront on a promise, walk away. Our guide to red flags lists the warning signs, and it is worth reading even if you are in a hurry.
Rebuilding your file
A private loan does not have to be the end of the story. Many borrowers use a short-term private mortgage to clear a problem, then spend six to twelve months rebuilding the file: paying everything on time, lodging returns promptly and keeping balances down. That opens the door to cheaper finance, including a longer-term private loan or a bank. The sooner the exit is planned, the better the whole sequence works.
Start your enquiry
Tell us the property, the amount and what has happened with your credit. There is no credit check when you first enquire, and a real person on our desk will tell you what is realistic. Start your enquiry.
Frequently asked questions
Can I get a private mortgage with a default on my file?
Often, yes. A fast private lender focuses on the property and the exit. A recent default is a talking point, and a lender will want to understand what happened, but it is not an automatic decline.
Will the lender run a credit check?
Not when you first enquire. If you choose to proceed with a particular lender, credit may be discussed, but the decision still rests mainly on the security.
Will bad credit make the loan more expensive?
It can. A lender may price in extra risk, shorten the term or ask for more equity. The strongest way to offset a weak credit file is a strong property position and a well-evidenced exit.
Does a tax debt count as bad credit?
An unpaid tax debt is treated as a debt to be dealt with, not as a score. If the loan clears it, the lender may be comfortable, because the ATO position improves. See our page on ATO debt for details.