If you arrange or provide private loans secured on Australian property, or you are a borrower or guarantor being offered one, this article is for you. Private lending fills gaps banks leave, such as bridging loans or a family member lending to a relative’s company.
In many Asian families and business communities, private loans are made on trust and a short document. That works until a payment is missed, a borrower dies, or a guarantor says they never understood what they signed.
The loan agreement and the security
A private loan usually involves several documents:
- The loan agreement sets the terms, events of default and the lender’s remedies.
- A registered mortgage over land gives the lender security recorded on the title. In Victoria, mortgages are registered under the Transfer of Land Act 1958, usually electronically. A registered mortgage generally gives the lender a power of sale after the required default notice process.
- A caveat may protect a lender’s interest in land where there is no registered mortgage. It does not create an interest or carry a power of sale.
- A general security interest over a borrower company’s other assets is often registered on the Personal Property Securities Register (PPSR), which covers personal property, not land or fixtures.
- Guarantees, often from directors or family members, make another person liable if the borrower does not pay.
Gaps between these documents, such as a guarantee that does not cover all amounts owed, can be costly to fix later.
Does consumer credit law apply?
The National Credit Code, in the National Consumer Credit Protection Act 2009 (Cth), applies broadly to credit provided to individuals (or strata corporations) wholly or mainly for personal, domestic or household purposes, or to buy, renovate or refinance residential investment property, where a charge is made for the credit and the lender provides credit as part of a business. Where it applies, the Code regulates disclosure, interest and fees, hardship, enforcement and related mortgages and guarantees. Lenders and brokers providing regulated credit generally need an Australian credit licence and must meet responsible lending obligations.
Private lenders often ask borrowers to sign a business purpose declaration. Under the Code, such a declaration can create a presumption that the Code does not apply. But the presumption does not work if the lender or broker knew, or had reason to believe, that the credit was really for a personal or residential investment purpose. ASIC has taken action against lenders over this. A declaration is not a substitute for understanding what the money is actually for.
Independent legal advice for guarantors and borrowers
Guarantees given by spouses, elderly parents or other family members are the documents most often challenged. A guarantor may argue they did not understand the transaction, were under pressure, or were at a special disadvantage. A lender who requires independent legal advice, and a certificate from the guarantor’s lawyer, is generally in a stronger position. The advice is meaningful only if the guarantor genuinely receives it, in a language they understand, without the borrower present.
Lending through a company, trust or SMSF
Lending through a company or family trust raises whether the constitution or deed allows it, how the interest is taxed, and how the loan fits the family’s estate plan.
Lending from a self-managed superannuation fund is far more restricted. The ATO states that an SMSF cannot lend money to a member or a member’s relative, or give them financial help. Any loan must be on commercial, arm’s length terms and fit the fund’s investment strategy, and related-party investment rules can also apply. A breach can have serious consequences for the fund.
Foreign lenders
- Withholding: interest paid to a foreign resident lender is generally subject to Australian interest withholding tax, which the borrower may need to withhold. Treaties can affect the position.
- FIRB: taking security over land under a genuine commercial moneylending arrangement is often exempt from foreign investment approval, but the exemption has limits, including for residential land where the lender is not a qualifying financial institution, and for one-off lenders. Advice is needed before the security is taken.
Default and enforcement
When a borrower defaults, the lender’s options depend on the documents and the law that applies. They may include demanding payment, enforcing the guarantee, appointing a receiver under a general security agreement, or exercising the mortgagee’s power of sale after the required notices. A selling mortgagee also has duties regarding the price. Where the National Credit Code applies, further notice and hardship rules apply. Defective default notices commonly delay enforcement.
AML/CTF obligations for lawyers from 1 July 2026
From 1 July 2026, the AML/CTF regime extended to lawyers providing certain designated services. These may include assisting with debt financing for a company, trust or other entity, and handling client money for a transaction. Whether a particular private loan is covered depends on the borrower and the work involved. Clients should expect identity and source-of-funds checks. Our separate article on the 2026 AML/CTF changes for lawyers’ clients explains this further.
Questions for lenders
- What is the borrower actually using the money for, and could the National Credit Code apply?
- Which entity is lending, and does it have power to do so?
- What security is being taken, and is it registered correctly?
- Has each guarantor received independent advice they understood?
- Are there withholding, FIRB or SMSF issues?
Questions for borrowers and guarantors
- What are the total costs, including default interest and fees?
- What counts as a default, and how quickly can the lender act?
- As a guarantor, what is my maximum exposure, and can I be released?
- Am I being asked to sign a business purpose declaration, and is it accurate?
Frequently asked questions
What legal documents do I need for a private loan in Australia?
Usually a loan agreement plus security documents, which may include a registered mortgage, a general security agreement and guarantees. The right set depends on the parties, the property and the purpose of the loan.
Is a private mortgage loan covered by the National Credit Code?
It may be, if the borrower is an individual and the loan is mainly for personal, domestic or household purposes or residential investment property, and the lender lends as a business. A business purpose declaration does not always prevent the Code applying.
Can my SMSF lend money to my family?
Generally not. The ATO states that an SMSF cannot lend to members or their relatives, and other SMSF loans face strict requirements. Trustees need advice on their fund’s circumstances.
How we work with private lenders and mortgage brokers
We act for private lenders, family investors who lend, and mortgage brokers who arrange private finance, and also for borrowers and guarantors who want to understand what they are signing. Typically, we review the proposed loan, identify whether consumer credit law may apply, prepare or review the loan and security documents, and coordinate independent advice for guarantors, including in Mandarin or Cantonese. The kinds of matters we handle include, for example, a family lending to a relative’s development company, a lender offshore taking security over Melbourne property, or a lender whose borrower has defaulted and who needs to understand the enforcement process. We also consider how the loan fits the lender’s structure and estate plan.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates prepares and reviews private loan, mortgage, security and guarantee documents, advises guarantors and borrowers, and assists lenders when a loan goes into default. Justin Chua trained in accounting (Bachelor of Commerce, accounting major), is an affiliate member of STEP (the Society of Trust and Estate Practitioners), and advises on the legal and tax structure of family wealth together. He is a Nationally Accredited Mediator and an Accredited Family Business Advisor, which can help where a family loan turns into a family dispute. We work with the client’s accountant and registered tax agents, and with lawyers in Asia for offshore lenders. The firm’s notary public assists with documents signed overseas. We advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
Related reading
Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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