Discipline in lending: why non-bank property finance is gaining ground

Australia’s non-bank lending sector has grown rapidly over the past two decades. What was once a niche part of the financial system has developed into a sophisticated funding ecosystem that now plays a significant role in property finance.

For Ernest Biasi, treasurer at Thinktank, that growth reflects a combination of innovation, disciplined underwriting and the ability of non-bank lenders to serve segments that traditional lenders often struggle to accommodate.

“Non-bank lending really grew out of providing tailored solutions to customers that the major banks weren’t able to offer,” Biasi says.

Today, the sector encompasses a broad range of products and lenders. However, for investors allocating to private credit strategies, understanding how these businesses manage risk remains critical.

A specialist approach to property lending

Thinktank’s origins lie in the commercial property market, particularly among smaller types of transactions. Rather than focusing on large institutional real estate projects, the firm built its business around small-balance loans for self-employed borrowers and small businesses.

“We started in the small-ticket commercial property space with loan sizes averaging around $1 million and typically up to a maximum of $4 million to $5 million,” Biasi explains.

These loans often finance industrial properties, retail premises or small strata-office suites in metro suburban areas. Office spaces typically house accountants, medical practitioners and other small business operators.

The firm also developed expertise in lending to self-managed super funds (SMSFs) buying commercial property. Over time, that customer base expanded to include residential lending while maintaining the same borrower profile of self-employed individuals and small businesses.

Despite this expansion, the core philosophy has remained unchanged.

“We stay within our lane, servicing a particular customer segment and providing property-backed lending solutions,” Biasi says.

Conservative risk management

Maintaining discipline in underwriting has been central to the firm’s long-term performance. Lending policies are designed to balance growth with careful risk control.

One of the most important guardrails is loan-to-value (LVR) ratios. Maximum leverage typically sits around 80 per cent, with tighter limits applied to higher-risk locations or property types.

“If we see higher risk in a particular area or property type, we simply dial down the loan size and reduce the LVR,” Biasi says.

This conservative approach has contributed to very low historical losses. Across more than $17 billion of originated loans, the firm reports cumulative losses of around two basis points.

Importantly, those losses have been absorbed by the lender rather than passed on to investors.

“The losses have been borne by us. They come through our bottom line, not through our investors,” Biasi explains.

For investors allocating capital to securitised credit strategies, that alignment of interest remains a key consideration.

The growth of the non-bank sector

The broader non-bank lending market has expanded significantly in Australia. Securitisation markets now provide the primary funding source for many specialist lenders.

Over the past several years, annual issuance of securitised debt has approached $80 billion, with non-bank lenders accounting for roughly 70 to 75 per cent of that activity.

This growth reflects the increasingly important role that non-bank lenders play in providing credit to households and businesses.

While residential mortgages remain the largest segment, the market now includes a diverse range of products. Equipment finance, consumer credit and commercial property lending all form part of the ecosystem.

As competition increases, however, pricing pressures have also emerged.

“The market has become more competitive and spreads have compressed,” Biasi says. “The real winners of this increasing competition are the borrowers  who benefit from cheaper financing.”

Funding diversity and capital markets

For non-bank lenders, maintaining reliable access to funding markets is essential. Most firms rely heavily on securitisation programs and warehouse facilities provided by banks or institutional investors.

Over time, many lenders have sought to diversify these funding channels. Thinktank, for example, now operates multiple warehouse funding lines and works with a broad network of domestic and international investors.

“From starting with a single warehouse facility two decades ago, we now have ten warehouses and more than 60investors (both domestic and offshore) supporting our RMBS and CMBS capital markets programs,” Biasi notes.

These funding relationships provide flexibility as loan volumes grow. The firm currently originates $400 million dollars of loans each month.

In addition to securitisation, some lenders are also exploring complementary funding sources, including private credit funds and whole-loan sales.

Data, governance and transparency

As the sector matures, investors have placed increasing emphasis on governance, data transparency and operational infrastructure.

Regular due diligence from funders and rating agencies has become a routine part of the process. Investors often examine loan files, underwriting policies and portfolio performance in detail before committing capital.

“Our warehouse funders, capital markets investors and rating agencies are constantly reviewing our underwriting practices and loan files,” Biasi says.

Technology has also become increasingly important. Modern loan platforms generate detailed performance data across portfolios, allowing lenders and investors to monitor arrears, prepayment trends and borrower behaviour.

These analytical tools enable lenders to respond quickly to changes in credit conditions while providing investors with greater transparency.

A maturing segment of private credit

For advisers allocating to private credit, the growth of non-bank lending represents an expanding opportunity set. Specialist lenders can provide exposure to segments of the economy that large banks may find operationally difficult to serve.

However, Biasi argues that success ultimately comes down to consistency and discipline.

Track record, funding stability and risk management remain the most important factors when evaluating lenders in the sector.

“You need to understand whether the originator has a consistent track record and the relationships to access funding markets during difficult periods,” he says.

As private credit markets continue to evolve, these characteristics will likely remain central to how advisers assess opportunities across the non-bank lending landscape.

Laurence Parker-Brown

Laurence Parker-Brown is head of content at The Inside Network and managing editor of The Inside Adviser and Investor Strategy News.