Non-bank lending has become an essential component of Australia’s financial system, addressing borrower demand beyond traditional banking channels. For investors, it provides opportunities to access income-generating, asset-backed loans — such as property loans supported by mortgage repayments.
Yet some investors may still be unclear about how these loans are generated and what the underlying quality or risks associated with the loans include.
The purpose of this article is to provide some further insight into the sector as it continues to grow. Understanding who uses non-bank finance is essential for investors interested in exploring different income-producing investments for their portfolio.
A short history of non-bank lending in Australia
It’s first useful to understand how non-bank lending has gone from small beginnings to a mainstream source of finance.
Its roots stretch back to the 1980s, when mortgage securitisation and deregulation allowed lenders outside the traditional banking system to access scaleable capital and offer products beyond the conventional bank model.
The Global Financial Crisis of 2008–09 was a pivotal moment. Banks sharply tightened their credit-risk appetite, making approvals more onerous and altering their focus to more straightforward lending. Non-banks stepped in to fill the gap that suddenly appeared, providing disciplined, asset-backed lending closely overseen by major institutional funders, global rating agencies and the Australian Securities & Investments Commission (ASIC). Over the following decade, growth continued to accelerate as regulatory measures, including the Hayne Royal Commission, progressively reshaped major-bank appetite for certain borrowers.
Today, the majority of non-bank lenders operate with institutional and private capital, supported by strong governance, prudent underwriting, and regulatory oversight under ASIC and the National Consumer Credit Protection (NCCP) framework. Their evolution reflects a sector that has adapted to real gaps in the market.
Over that time the proportional rise of SME, SMSF and self-employed borrowers has become a primary market for non-bank lenders, who have developed more tactile income verification methods, introduced SMSF loan options and evolved alternate documentation products to serve them.
Understanding this history is critical to appreciating why high-quality borrowers frequently turn to non-banks that have built a model designed to meet borrower needs the traditional system sometimes cannot meet, or may not meet as well.
Who uses non-bank finance (and why)
Non-bank lenders serve a diverse range of borrowers who need solutions that banks may be too constrained or slow to provide.
For example, recent figures show that 55 per cent of small and medium-sized enterprises (SMEs) intend to use non-bank lenders for their finance needs, compared to just 7 per cent a decade ago.[1]
Take a small business owner who wants to opportunistically buy the small commercial property the business is currently leasing, to reduce costs and simultaneously build long-term wealth. Traditional banks might take weeks to approve such a loan or require stringent documentation locking-in the whole banking relationship, thereby slowing-down the opportunity.
But SMEs aren’t the only example. Self-employed professionals often find their income streams don’t fit neatly into the rigid documentation banks require for a residential mortgage. For example, a physiotherapist running her own practice may earn a strong income over the course of time but with variable monthly or annual cash flows. A non-bank lender can be more flexible in their assessment of this income when she applies for a residential or commercial mortgage.
The demand for this is clear when you consider that Westpac recently announced[2] that following a 30 per cent surge in lending to self-employed customers, it would roll-out changes to make it simpler and faster for them to get a home loan – including cutting the income paperwork required from two years to one. Other majors like ANZ and CBA have made similar moves in an effort to compete with more agile non-bank lenders.
Meanwhile, property investors often require funding when acquiring residential or commercial properties. For example, an investor looking to buy a fully leased apartment block at auction may need fast, reliable financing to secure the property before settlement. A non-bank lender can usually provide approval sooner with a tailored loan structure that fits the timing and income profile of the asset alongside the borrower’s other financial arrangements; when that may not be possible from a major bank, which is constrained by more cumbersome processes and less flexible policy.
Across all these examples, borrowers repeatedly choose to consider non-bank finance options because they need a lender that can move quickly and accommodate a range of structures.
What it means for investors
As well as serving borrowers, non-bank lending equally creates opportunities for investors seeking steady, income-oriented returns through loans secured against assets such as Australian residential and commercial properties.
Unlike equity investments or directly buying residential property, returns come primarily from the borrower’s ability to generate cash flow, not from speculating on the appreciation of the underlying asset or property. Security over the asset provides an additional safeguard, but it is secondary to the quality of the borrower and the income stream.
The strength of this model lies in disciplined underwriting, fit-for-purpose structures, and a focus on borrowers and security properties with proven cash flows, creating predictable, recurring income. This lending model is designed to generate income from borrowers’ mortgage repayments and may offer a different risk-return profile compared with traditional fixed-income investments.
There is significant variation within the asset class, however, and investors are ultimately responsible for conducting their own due diligence and carefully assessing any managers or lending opportunities before making investment decisions.
While non-bank lending can offer attractive returns, investors should be aware of risks including borrower default, investment illiquidity and property market fluctuations. These risks may vary depending on factors such as the asset class, borrower profile and loan-to-value ratio, even within a consistently structured loan portfolio.
The sector’s growth reflects the fact that established, long-lasting players, many of which have been around for more than twenty years, take a highly disciplined approach to lending that fills genuine market gaps. Investors receive income derived from borrowers’ cash flows, with tightly documented security over underlying assets acting as an additional safeguard.
This article is for general information only and does not constitute financial advice. It has been prepared without taking into account your objectives, financial situation or needs. Past performance is not a reliable indicator of future performance. Thinktank’s investment products are available to wholesale investors only (as defined under the Corporations Act 2001 (Cth)).
[1] https://www.scotpac.com.au/media-releases/media-release-broker-demand-grows-as-non-bank-lending-becomes-the-new-normal-for-smes/
[2] https://www.westpac.com.au/about-westpac/media/media-releases/2025/3-july/