Preparing your bank refinance while you are on a private loan

A private loan as a bridge to the bank

Private secured loans are often the first step rather than the final destination. A business uses private funding because a bank could not lend in time, because accounts were late, because there was tax debt, or because the bank’s policy excluded the deal for now. The private loan solves the immediate problem. Then, once the obstacle is gone, a bank refinance repays it on longer and usually cheaper terms.

The term of the private loan is a window. Used well, it turns a business the bank declined into one the bank wants to lend to. Used poorly, it ends with the same obstacles still in place and a maturity date approaching.

Step one: write down why the bank said no

Be specific. Was it missing or late financial statements? Tax arrears or outstanding lodgements? Defaults on the credit file? Insufficient servicing on the figures available? A valuation below the purchase price? A property type the bank does not like? Each reason calls for a different fix, and some take longer than others. If you are unsure, ask the bank or your broker for the reason in writing.

Step two: finalise accounts and lodgements

Banks rely heavily on financial statements and tax returns. If accounts were behind, work with your accountant to finalise them as a priority. Lodge every outstanding BAS and income tax return. If the latest year was unusually poor because of a one-off event, ask your accountant to prepare a short explanation and, where helpful, management accounts showing current trading.

Step three: resolve tax debt

Many banks will not lend while ATO arrears exist. If the private loan cleared the tax debt, make sure the business stays current from then on: lodge on time, pay as you go and keep tax money separate. If some tax debt remains, discuss a plan with your accountant. A clean record over several consecutive quarters is a powerful signal to a bank.

Step four: tidy the credit file

Obtain credit reports for the business and each director. Pay or settle any defaults that can be resolved, ask creditors to update records once paid, and dispute any errors. Moneysmart has guidance on reading and correcting credit reports. A short written explanation of any remaining issues, with evidence of resolution, helps the bank assess them fairly.

Step five: keep the private loan in good order

Meet any obligations under the private loan, keep insurance current and stay in touch with your lender about the refinance timetable. A bank will often ask about existing debts, and a private loan that has been managed properly supports your case.

Ask about a private loan with a bank exit if you are planning this pathway now.

Step six: approach banks early

Start talking to banks, or a broker who knows them, well before the private loan’s term ends. Find out what each bank requires, how long its process takes and whether your situation fits its criteria. Different banks have different appetites for property types, industries and borrower profiles. An early conversation lets you fix any remaining gaps while there is still time.

Step seven: plan for the bank’s valuation

Unlike the private loan, the bank will almost certainly order a formal valuation. Its view of value determines how much it will lend. Plan conservatively: if the bank values the property lower than expected, will its loan still repay the private loan in full? If not, how will the difference be covered? Having an answer in advance prevents a last-minute scramble.

Step eight: coordinate settlement

When the bank approves, it will arrange settlement with the private lender, usually electronically. The private lender provides a payout figure, the bank’s funds repay it, the private mortgage or caveat is discharged and the bank’s mortgage is registered. Ask the private lender about payout figures and any early repayment terms well ahead of time. See early repayment and discharge.

Illustrative timeline

Illustrative only. Month one: private loan settles a commercial purchase the bank could not finance in time because accounts were late. Months two and three: accountant finalises the accounts and lodges returns. Month four: borrower approaches two banks through a broker. Month five: bank orders a valuation and issues approval. Month six: bank refinance settles, repaying the private loan. The private loan’s twelve-month term gave a comfortable buffer.

Common mistakes

• waiting until the last months of the private loan to start
• assuming the bank will lend the same amount as the private lender
• letting tax lodgements slip again
• taking on new debts that hurt servicing
• not asking the bank exactly what it needs

If the bank still says no

Sometimes a bank still declines. Ask why, and consider other banks or non-bank lenders whose criteria differ. If no refinance is possible in the near term, the private loan is flexible and can stay in place while you work on the remaining issues or arrange another exit, such as a sale. See plan B exits.

Questions to ask yourself monthly

• Are accounts and tax lodgements up to date?
• Has the credit file been checked and corrected?
• Which banks have I spoken to, and what did they say?
• Is the property’s value tracking as expected?
• How many months remain on the private loan?

Building a relationship before you need it

Banks respond better to businesses they know. During the private loan’s term, consider opening a business transaction account with the bank you hope will refinance, or meeting its business banker to explain your plans. A banker who has watched your business improve over several months is more likely to support the refinance than one seeing your file for the first time a few weeks before your private loan matures. Share your progress: lodged accounts, cleared tax, steady trading. Those updates turn a cold application into a warm one.

Keeping costs in view

Every month on the private loan has a cost. Track it against your refinance timeline and weigh whether spending a little more to speed up accounts or valuations is worthwhile. Often it is.

Start the journey with the end in mind

Using a private loan as a bridge to a bank works best when the bank refinance is planned from day one. Tell us why the bank could not lend, what you are doing to fix it and the timeline you expect, and a specialist will structure the private loan to give you the time you need. There is no credit check when you first enquire, your details stay within our team, and a clear refinance plan helps us set a realistic term. Plan your pathway.