Bank vs Non-Bank Commercial Property Loans: Choosing the Right Lane

The fundamental difference between bank and non-bank commercial lenders in Australia is not the type of loans they write — it is the source of capital they lend, the regulator that supervises them, and the cost at which their capital is funded. Those three factors flow through to every aspect of how they price, assess and structure deals.

Banks (authorised deposit-taking institutions, or ADIs) are supervised by APRA and the Reserve Bank, fund themselves predominantly from retail deposits at very low cost, and operate under formal capital and lending policy frameworks set by APRA prudential standards. The cost of capital is the lowest in the market, but the policy framework — particularly post-COVID — is restrictive on commercial property asset classes deemed higher risk, and the credit assessment process is correspondingly rigorous and slow.

Non-bank commercial lenders are not deposit-takers and are not APRA-regulated. They fund themselves through wholesale credit warehouses (institutional bank lines that fund pools of loans), private credit fund mandates, or proprietary balance sheet capital. The cost of capital is higher — typically 200–400 basis points above bank wholesale funding cost — but the policy framework is set by the lender themselves, not by a prudential regulator. That single fact is what makes non-banks meaningfully more flexible on LVR, on documentation lanes, on asset class and on speed.

Bank commercial loan pricing is built from four components: the underlying funding cost (typically the relevant BBSY rate), a credit margin reflecting the deal's risk profile, the capital cost (the cost of the regulatory capital the bank must hold against the loan), and a target return on capital. The total all-in cost on standard senior bank commercial debt in Australia indicatively sits in the 6.5–8.5% range as at early 2026, varying with security, lever and asset class.

Credit assessment at the major banks runs through a tiered approval process: front-line banker, credit officer, credit committee for larger deals. Each stage applies the bank's internal lending policy — published policy on LVR ceilings, sector exposures, sponsor types, and asset classes the bank is currently 'open' or 'closed' on. The policy framework is not particularly negotiable; an experienced banker can argue for policy exceptions on a deal-by-deal basis, but the rate of approval for genuine policy exceptions is low.

Bank serviceability tests are calibrated to a stressed assessment rate — typically the headline interest rate plus 2.5–3.0% on commercial debt. The borrower's income must cover loan repayments at the stressed rate, typically at an Interest Coverage Ratio (ICR) of 1.30× or higher. Both inputs are policy-driven; both compress what looks on paper like a comfortable transaction into a tight one once the stressed serviceability calculation is run.

Non-bank commercial lender pricing is built from a different stack: the cost of their warehouse or fund mandate, a credit margin reflecting deal risk, the lender's operating overhead, and the return target the warehouse provider or fund LPs require. Total all-in cost on standard senior non-bank commercial debt in Australia indicatively sits in the 7.5–11% range as at early 2026 on first-mortgage senior, with stretch-senior and transitional product running 10–13%+.

The 100–300 basis points of pricing premium versus bank is what funds the policy flexibility. Non-banks accept higher LVR (typically 70–75% versus bank 60–70% on equivalent security), more challenging documentation lanes (Low Doc on tighter sponsor profiles, Asset Lend on vacant or transitional security), faster settlement (3–6 weeks versus bank 8–14 weeks), and more bespoke covenant structures than banks can offer within APRA-set guardrails.

Credit assessment at most non-banks is faster and more concentrated — often a single credit committee with direct sponsor-to-decision-maker access, rather than the tiered escalation typical at banks. This is a major structural advantage on time-sensitive deals: a sponsor can sit across the table from the lender's actual decision-maker and have substantive policy discussions, rather than relaying through a front-line banker who may not have authority to make the call.

All pricing is indicative across the Australian market as at early 2026 and varies materially with sponsor, security, lender selection within each lane, and competitive tension at the time of submission. The gap between most and least competitive lenders within each lane is often 50–150 basis points — frequently larger than the gap between bank and non-bank on equivalent risk.

Speed is the single most under-priced advantage of the non-bank lane. On a clean Full Doc deal, the difference between an 8-week bank settlement and a 3-week non-bank settlement is rarely worth the pricing premium. On a deal where a settlement window must hit a specific date (off-market acquisition with a tight settlement, refinance with an existing facility maturing, distressed acquisition opportunity), the speed difference is the entire deal.

Indicative timeline by lane

Covenant structure is the most under-negotiated element of commercial debt and one of the largest differences between bank and non-bank lending. Bank facilities are structured around standardised covenant templates set by the bank's credit policy — LVR, ICR, financial reporting frequency, payment performance. The wording and thresholds are typically fixed and small variations require credit committee approval.

Non-bank facilities are negotiated more openly. Covenants on a non-bank facility frequently reflect the specific risk profile of the asset rather than a template — a covenant package on a tenanted industrial deal looks materially different from one on a transitional office. Borrowers with the capacity to negotiate covenant structure intelligently can extract meaningful flexibility from non-bank lenders that banks structurally cannot offer.

This matters most at the point of stress. A facility with rigid covenants triggers a default conversation on the first ICR slip or LVR creep; a facility with bespoke covenants and bilateral cure rights can absorb a temporary market shift without becoming a workout. Both lenders ultimately need to be repaid, but the path through difficulty is materially different.

Six conditions push a deal naturally toward the bank lane. When all six are present, bank pricing and policy are usually the right answer — and the saving over the cycle is material.

1. Borrower has 2+ years of complete, lodged, clean Full Doc financials
2. Property is income-producing with established tenant and 3+ year WALE
3. LVR sits comfortably within bank policy ceilings (typically below 65%)
4. Settlement timeline is flexible enough to absorb a 10–14 week process
5. Sponsor wants the longest available term (25-year amortising)
6. Asset class is currently 'open' at bank credit policy (industrial, professional office, established retail)

Equally, six conditions push a deal naturally toward the non-bank lane. The pricing premium is the cost of solving a problem that bank policy structurally cannot solve.

1. Settlement must close in 6 weeks or less (off-market acquisition, refinance maturity, distressed opportunity)
2. Required LVR is above the bank policy ceiling for the asset class
3. Borrower cannot produce Full Doc financial evidence (Low Doc lane required)
4. Property is vacant, transitional, or being repositioned (Asset Lend lane required)
5. Sponsor has historical credit events that bank policy declines outright
6. Asset class is currently 'closed' or restricted at bank credit policy

Australian private credit funds have expanded the available capital pool meaningfully since 2020. The market now includes institutional-grade private credit managers writing $500m–$3bn+ commercial mandates, competing actively in the mid-market ($3m–$50m loan sizes) and increasingly in the large-mid market ($50m–$200m). They typically price between non-bank senior and mezzanine — indicatively 9–12% all-in on senior security in 2026 — and combine non-bank-style flexibility with bank-style execution discipline.

The private credit lane suits a specific set of deals: bridge facilities ahead of a mapped bank or capital markets refinance, complex sponsor structures requiring bespoke documentation, transitional assets in repositioning, and time-sensitive transactions where the sponsor values certainty of execution at known pricing over the pursuit of an extra 50 bps. For sponsors who run multiple commercial transactions per year, a relationship with one or two private credit managers is increasingly part of the standard capital toolkit.

Most sponsors will refinance between lanes during the hold period of a commercial asset. The most common path: acquire on non-bank (high LVR, fast settlement, tolerated transitional income), stabilise the asset over 12–24 months (lease up to long WALE, demonstrate clean payment performance, season the income), then refinance to bank Full Doc once the asset and borrower profile meet bank policy. The pricing compression at refinance — typically 150–300 bps — comfortably outweighs the original acquisition pricing premium across the life of the deal.

The reverse direction (bank to non-bank) is rarer but happens — most commonly when a bank's policy on a specific asset class shifts mid-cycle (post-COVID office is the textbook example), forcing existing borrowers into refinance not by choice but by bank attrition. The non-bank market provides continuity in these moments, with materially more flexible policy than the now-restrictive bank lane.

The practical implication is that the lender on the original acquisition facility is rarely the lender for the full hold period of a commercial property. Sophisticated sponsors structure their original facility with the refinance exit explicitly in mind — choosing facility terms (typically 18–36 months on non-bank acquisition debt) that align with the expected stabilisation timeline, avoiding break costs that would compromise the refinance economics, and building reporting discipline through the acquisition phase that produces the documentation set the next lender will require. Treating the financing as a multi-phase plan rather than a single static transaction is one of the clearest differences between professional and amateur commercial property investment.

1. 'Non-bank lenders only do bad deals' — Wrong. Most non-bank volume is clean Full Doc business at competitive terms; the 'tier-three Asset Lend with adverse credit' segment is a small fraction of the lane.
2. 'The pricing premium isn't worth it' — Wrong on the right deal. On a transitional asset that bank policy declines outright, the comparison is non-bank versus no deal, not non-bank versus a cheaper bank quote.
3. 'Once you're on non-bank you can't get back to bank' — Wrong. The refinance from non-bank to bank, once the asset and borrower season, is one of the most common transactions in commercial property finance.
4. 'Banks are always cheaper' — Wrong on a like-for-like basis once policy fit is factored in. A bank decline forces a sponsor down-lane to a non-bank position anyway, often at worse terms than going to the right non-bank lender at the start.
5. 'Non-banks aren't regulated' — Partly wrong. Non-banks sit outside the APRA prudential perimeter, but they remain subject to corporate, AML/CTF and consumer-credit law overseen by ASIC and AUSTRAC. Business-purpose commercial lending is largely exempt from the National Consumer Credit Protection Act (consumer credit framework), so most commercial non-bank facilities are written outside the NCCP regime — but the lender's broader conduct, disclosure and AML obligations still apply, and many commercial non-banks voluntarily hold an Australian Credit Licence (ACL) to operate across consumer and business-purpose lending.