Australia’s private credit market now sits at roughly $200 billion, and recent developer collapses have forced a conversation the sector spent years avoiding: where does the capital actually come from, and what happens when borrowers default?
The question matters because private credit operates outside the prudential framework that governs traditional banks. When a major developer enters administration carrying billions in debt, the ripple moves through a network of wholesale investors, fund structures, and retail vehicles that don’t always respond the same way a bank balance sheet would. The broader lending appetite, what borrowers can access next quarter, or whether existing facilities stay open, depends entirely on whether those underlying investors stay committed or pull back.
The funding model question most skip
Private credit is not a single product. Some lenders draw on committed capital from institutional backers; others rely on retail fund flows that can reverse when returns compress or headlines turn. The difference determines whether a lender can continue writing new loans when portfolio stress rises, or whether it pulls back and leaves borrowers mid-transaction.
A term sheet is only useful if the lender has capital available to settle. That sounds obvious, but the structure underneath varies widely. Funds backed by committed wholesale capital, where investors have locked in their allocation for a set term, can generally continue lending through a downturn. Funds reliant on ongoing retail inflows face a different constraint: redemption pressure can force asset sales or a lending freeze, regardless of deal quality.
For property investors using private credit to bridge a purchase, refinance a development, or top up equity for a renovation, this is the mechanic that determines whether the facility actually completes or stalls two weeks before settlement.
What stress in one deal tells you about the rest
When a borrower defaults, the lender’s next move reveals how its portfolio is actually structured. A lender with disciplined underwriting, low leverage across its book, and committed capital can typically work through a problem loan without affecting other borrowers. A lender carrying high leverage, thin margins, or concentration risk in one sector, say, residential development in a softening market, may need to tighten across the board to preserve liquidity.
Recent developer collapses have shown this dynamic in real time. Some private credit lenders continued writing new loans and offering refinance options to existing clients; others paused new commitments and began reviewing covenants on live facilities. The difference was not the size of the initial loss, but the capital structure and portfolio composition underneath.
The catch
Private credit does not publish loan performance data the way banks report non-performing loan ratios. Most funds disclose returns and fund size, but not arrears rates, loan-to-value distributions, or concentration by borrower type. That opacity makes it harder for borrowers, and their brokers, to assess whether a lender is genuinely stable or one large default away from a funding squeeze.
Risk transfer or risk diversification
Regulators are now asking whether tighter bank lending standards have simply moved risk into a less supervised corner of the market, rather than reducing it. The argument has surface appeal: if a developer who cannot meet bank serviceability tests borrows from a private credit fund instead, the credit risk has not disappeared, it has shifted to a different pool of investors.
But the counterfactual matters. Some private credit deals would not exist under bank criteria, not because the credit is poor, but because the transaction does not fit a standardised mortgage or commercial loan product. A mezzanine facility on a strata subdivision, a bridging loan for a buyer competing at auction, or working capital for a builder managing staged settlements, all involve real cashflow and security, but none fit neatly into a bank’s automated credit model.
The question is not whether private credit carries risk, it does, but whether the investors funding it understand and price that risk, and whether borrowers using it have a realistic exit plan. A developer financing a project with private credit at 12 per cent needs a margin and timeline that supports that cost. If the business case only works at 7 per cent, the problem is the deal structure, not the lender.
What investors should ask before committing capital
If you are considering a private credit fund as an investment, or using a private credit lender to finance a property transaction, these are the questions that separate disciplined operators from stretched ones:
- Where does the fund’s capital come from, wholesale, retail, or a mix?
- Is that capital committed for a fixed term, or can investors redeem monthly or quarterly?
- What is the loan-to-value ratio across the portfolio, and how much headroom exists if values compress?
- How many loans are currently in arrears or under active management?
- What is the lender’s track record through a prior downturn, did it continue lending or pull back?
- If the fund raised money from retail investors, what is the redemption structure, and has it been tested under stress?
No private credit lender will answer all of these in a first meeting, but the willingness to address the questions at all tells you whether the business is built for transparency or built for volume.
Scenarios over the next 12 months
Base case: Regulatory scrutiny increases, particularly around retail investor disclosure, but private credit continues growing as bank lending criteria remain tight. Borrowers able to demonstrate strong cashflow and a credible exit plan continue accessing facilities; marginal deals face higher rates or outright declines.
Downside: A cluster of developer defaults forces redemptions across retail-funded private credit vehicles, tightening liquidity and raising rates across the sector. Borrowers mid-transaction face repricing or facility cancellations; refinancing options narrow.
Upside: Increased transparency and governance standards attract more institutional capital, lowering the cost of funds and improving stability. Private credit becomes a more predictable component of the financing stack, rather than a last-resort option.
Practical next step
If you are financing a property purchase or development with private credit, ask your broker or lender to confirm the source and structure of their funding before you rely on a term sheet. A facility backed by committed capital is fundamentally different from one that depends on monthly fund inflows, and that difference determines whether the loan actually settles. If you are an investor in a private credit fund, review the redemption terms and portfolio composition now, before the next headline tests liquidity.
Private credit funds face liquidity test after developer exposure
Developer collapse: $3.5bn debt triggers urgent lender call
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General info, not financial advice.
