Australian businesses have traditionally borrowed from the banks, and the major banks still provide most corporate lending. Over the past decade, though, private credit has grown into a real alternative. Clayton Utz estimated the Australian private credit market at around 213 billion dollars in October 2026, up from about 35 billion a decade earlier. For a mid-market company, that means more choice, and more need to understand who you are borrowing from.
How private credit compares with the banks
Where funds add value
Private credit funds tend to be more flexible than the banks on structure. They will often lend more against earnings, accept lighter amortization, and finance situations that sit outside a bank's credit policy: acquisitions, recapitalisations, businesses with uneven earnings, or companies in sectors the banks are reducing exposure to. A single fund can usually make a decision quickly, which matters when a transaction has a fixed date.
Where the banks win
Bank debt is generally cheaper, because banks fund themselves with deposits. Banks also bring transaction banking, foreign exchange and trade finance, and a long relationship can count for a lot in a difficult year. The Reserve Bank's October 2026 Financial Stability Review judged Australian banks to be well positioned to continue lending, even in a downturn.
The cost of money today
Both are more expensive than they were a year ago. The Reserve Bank raised the cash rate by 25 basis points to 4.60 percent on 29 September 2026, its fourth increase of the year, and said it remains focused on ensuring high inflation does not become embedded. Floating-rate borrowers feel each move directly, so interest cover and hedging deserve more attention in any new facility.
What has changed in 2026
Private credit in Australia has had a harder year. The collapse of a large Sydney property developer in August led to redemption freezes at several funds, and other funds have frozen redemptions after valuation adjustments. The Australian Securities and Investments Commission warned funds in June 2026 that end-of-year valuations had to be current, accurate and grounded in realistic assumptions, noted signs of borrower stress, and has since signalled enforcement action in the sector.
The Reserve Bank's view is that private credit's small size and structure mean it does not pose a system-wide risk to financial stability, though it has highlighted the opaque practices of some funds as a concern for investors.
For a borrower, this matters for a simple reason. A fund under pressure from its own investors may be slower to approve, less willing to fund the next stage of a facility or harder to deal with on an amendment. The stability of the lender is part of the credit decision.
Questions to ask a private credit lender
- Where does the money come from? Funds backed by long-term institutional capital, such as superannuation funds, insurers or closed-end vehicles, are less exposed to sudden redemptions than funds that offer investors regular liquidity.
- Will they hold the loan? Ask whether the lender intends to keep the whole loan or sell parts of it, and to whom. It decides who you will be negotiating with later.
- Can they fund the whole facility, including undrawn amounts? A commitment to fund future acquisitions or capex is only as good as the lender's capacity to meet it.
- What is their record in difficult cases? How have they handled covenant breaches and amendments with other borrowers? References from other companies are worth asking for.
- How are they set up in Australia? A local team with credit authority usually moves faster than one that refers decisions offshore.
Terms to look at closely
- Interest cover and leverage covenants, and how EBITDA is defined
- Prepayment fees and make-whole provisions if you refinance early
- Hedging requirements, given floating-rate exposure
- Information undertakings: monthly reporting, lender calls and site visits
- Security and guarantee coverage across the group, including any New Zealand entities
- Events of default linked to changes of control or key person departures
What lenders will want to see
Whether you approach the banks or private credit funds, the quality of the information you provide decides how quickly you receive serious terms. Australian lenders typically ask for:
- three years of audited or reviewed financial statements, with management accounts for the current year
- a monthly forecast for at least the next twelve months and an annual model for the term of the loan
- a clear bridge from reported profit to the EBITDA you are asking them to lend against
- an aged debtor and creditor listing and a summary of major customer contracts
- details of existing debt, leases, guarantees and security, including any held by related parties
- a group structure chart showing which entities will borrow and guarantee
Funds will usually go further, with detailed questions on customer concentration, management depth and downside scenarios, and many will commission their own financial due diligence. Preparing a single, complete package at the start means every lender works from the same information and the comparison between their offers is fair.
Bank, fund or both?
As a rough guide, a business with steady earnings, moderate leverage and a straightforward use of funds is likely to get its best terms from the banks. A business that needs more debt than the banks will provide, is funding an acquisition or a change of ownership, or operates in a sector the banks are cautious about, will usually find a fund more accommodating. Many fall between the two, and for them the answer depends on how much flexibility is worth against a higher interest cost. That is a question best answered with real offers on the table rather than in the abstract.
Running a mixed process
For many mid-market companies the best outcome comes from putting the same credit package in front of the banks and a small number of well-capitalised funds at the same time. The banks set a benchmark on price; the funds show what more flexible structures would cost. Sometimes the answer is a combination: a bank working capital facility alongside a fund term loan.
Kenward Partners works with banks and private credit funds active in the Australian and New Zealand mid-market. We prepare the credit case, check each lender's appetite and funding before your name reaches them, and compare the offers on cost, flexibility and lender strength.
Sources: Clayton Utz, October 2026; Reserve Bank of Australia, 29 September 2026; Reserve Bank of Australia, Financial Stability Review, October 2026.
