Private credit in Australia: the 2026 investor's guide

Private credit in Australia is lending by non-bank lenders and funds, financed by investors instead of bank deposits. The market is worth around $200 billion, and about half of it is real-estate debt. Returns can beat term deposits comfortably, but the risks vary enormously depending on what is lent against and how you hold your investment.

That last point is the one most investors miss. “Private credit” covers a secured six-month loan against an established house and a three-year construction loan on an unbuilt tower. It covers a listed trust you can sell in seconds and a fund that can lock you in for years. This guide walks through the market, the choices and the tests that matter in 2026.

What is private credit?

Private credit is debt that is arranged privately between a lender and a borrower, rather than raised from a bank or issued as bonds on public markets. The lender is usually a fund, a specialist non-bank lender or a group of investors. The money comes from investors: super funds, family offices, high-net-worth individuals, SMSFs and, increasingly, everyday retail investors.

For the investor, the appeal is income. Borrowers pay interest, and that interest flows back, usually at rates well above cash. For the borrower, private credit offers speed, flexibility or a willingness to lend where banks will not.

Private credit is sometimes called private debt or non-bank lending. The terms overlap. What matters is not the label but three questions: who is the borrower, what secures the loan, and how is the investor’s money held?

How big is private credit in Australia?

ASIC’s REP 814, published in September 2025, estimated the market at around $200 billion. The report cited industry estimates of $205 billion and $213 billion, and noted that “approximately half” is real estate focused.

Other analysis puts real-estate debt at more than half the market, mostly lending to developers. That concentration is the single most important fact about Australian private credit. It explains why the collapse of one large developer in August 2026 rippled through dozens of funds.

The market has grown as banks have become more selective about development and smaller business lending, and as investors have looked for income above term deposits. Many new managers and funds have launched in the past few years, ranging from long-established institutions to recently formed operators.

How is private credit different from bonds and term deposits?

A term deposit is a loan to a bank, protected up to a limit by the Financial Claims Scheme, with the bank bearing all the credit decisions. A listed bond is a loan to a company or government that trades publicly, with a price that moves every day.

Private credit sits outside both. There is no deposit protection and usually no public market. The loan is negotiated directly, the terms are bespoke, and the investor’s protection comes from three things: the borrower’s capacity to repay, the security behind the loan, and the quality of the lender who arranged it.

That makes private credit less liquid than either alternative, and more dependent on structure. It also explains the higher return. Investors are paid for lending where banks and bond markets are not, for accepting less liquidity, and for trusting someone’s credit judgement. The question for any private credit investment is whether you can see enough to judge those things yourself.

What types of private credit are there?

Broadly, Australian private credit falls into three groups, and real-estate debt splits further in a way that matters a great deal to investors.

The last two rows look similar on a fund’s fact sheet, since both are “real estate debt” secured by mortgages. They are very different risks. A construction loan depends on a project being finished and sold. A loan secured by an existing property can be valued today, and if the borrower does not repay, the lender can take possession and sell a finished asset. We look at the construction side in detail in what the Bathla collapse means for private credit.

How can you invest in private credit?

This is where investors have the most control, and where the biggest differences hide. The same type of loan can be held in very different ways.

Listed trusts offer daily liquidity, but the price reflects market sentiment. In nervous times units can trade below the value of the underlying loans.

Unlisted pooled funds are the most common vehicle. They are simple to buy, but you rely entirely on the manager, and the fund can gate or freeze redemptions if too many investors want out at once.

Contributory schemes link your money to a specific loan, which improves visibility.

Direct co-funding goes further: you choose a specific loan, you are named on its registered mortgage, and repayments come straight to you. Our comparison of direct mortgage investment vs pooled funds sets out the trade-offs in full.

What returns does private credit pay?

Returns range widely, and should be read alongside the risk and structure behind them. As at September 2026:

Why can some private credit pay double-digit returns? Partly because of risk, and partly because of what borrowers are paying for. Short term business loans are priced for speed and flexibility: established businesses using equity in property will pay a premium to have a letter of offer within hours and settlement within days. The loans are short, often 1 to 12 months, so the lender’s capital turns over quickly.

Structure matters too. In a pool, the manager’s fees and margin sit between the borrower’s rate and your return, and your return is averaged across every loan. When you co-fund a specific loan directly, your rate is set for that loan.

A higher return is never free. The test is whether you can see and understand the risks that produce it.

What are the main risks of private credit?

Most private credit losses fall into a handful of categories.

• Credit risk. The borrower does not repay. The protection is security and an equity buffer, measured by the LVR.
• Development risk. Construction and land loans depend on projects being completed and sold.
• Liquidity risk. Funds promise withdrawals that their loans cannot support, then gate.
• Valuation risk. Loans and properties are carried at values that lag the market.
• Conflicts and fees. Managers keep borrower fees or deal with related parties.
• Misconduct. In the worst cases, money is diverted. Shield and First Guardian took around $1.1 billion from roughly 12,000 Australians.

None of these structures, including direct lending, is covered by the Financial Claims Scheme, which protects bank deposits. Our 10-point private credit test turns these risks into questions you can score.

What has ASIC said about private credit?

ASIC’s scrutiny has intensified steadily since 2025.

The REP 820 findings are worth knowing. Of 28 funds, only four published the rates charged to borrowers. Fewer than half had detailed written credit, impairment and default policies. Most lacked effective separation between the people approving loans and those monitoring them. Only two wholesale funds stress-tested liquidity. And some offered side letters giving particular investors better redemption terms.

The Reserve Bank has noted the same concern about transparency. Governor Michele Bullock said in August 2026 that “people don’t know where the leverage is. They don’t know who is exposed”, while adding she did not see a massive systemic worry for Australia.

What happened in 2026?

In August 2026 Sydney developer Bathla Group entered administration, with its parent group reporting about $3.2 billion in liabilities, mostly owed to private credit. Around 40 funds were exposed. In the weeks that followed, Centuria Bass paused redemptions on two credit funds, CVS Lane suspended redemptions, MA Financial capped withdrawals at 1% a month as a precaution, and Merricks and Longreach restricted redemptions.

The episode did not show that private credit is broken. It showed where the fault lines are: development exposure and liquidity mismatch, sitting inside pooled funds whose investors could not see either clearly.

Why does private credit suit some investors and not others?

Private credit tends to suit investors who want regular income above cash, can commit capital for a defined period, and are prepared to read what they are investing in.

SMSF trustees are significant players. The ATO’s March 2026 figures show 672,805 SMSFs holding $1.06 trillion, with 16% of assets in cash and term deposits. Trustees looking for more income from that cash often consider private credit, provided the trust deed and investment strategy allow it.

Family offices and high-net-worth investors often use private credit as the income layer of a portfolio, alongside shares and property, valuing short terms and security over property they can inspect.

Overseas investors use Australian private credit to earn income from Australian real estate without buying and managing property themselves.

Private credit suits investors less well if they may need the money at short notice, or if they want exposure without looking at what sits underneath.

Who can invest in private credit?

Many pooled funds are open to retail investors with low minimums. Wholesale-only offers, including direct co-funding, require investors to meet the Corporations Act tests. In broad terms that means an accountant’s certificate, no more than two years old, showing net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years. Those thresholds have not changed since 2001. Our page for wholesale investors explains the tests.

How do you choose a private credit investment?

Start with structure, then look at yield. These questions separate transparent offers from opaque ones:

1. Can you see each loan, or only portfolio averages?
2. Is the security registered in your name?
3. How much is lent to construction, land or development?
4. Do the withdrawal terms match the loan terms?
5. Is the manager’s own money in the same loans?
6. What does the borrower pay, and what does the manager keep?
7. Who values the security, and are they independent of the people who approved the loan?
8. What is the maximum LVR, and how is it defined?

Each is expanded, with our own answers, in 12 questions to ask any private credit manager.

Where does HomeSec’s model fit?

HomeSec Business Finance, an Australian private lender founded in 2004, sits in the last row of the vehicle table: direct co-funding of real-estate debt secured by existing property.

It funds the majority of its loans off its own balance sheet. On some loans, it invites wholesale and high-net-worth investors to co-fund alongside it, often 50/50. HomeSec co-invests its own money in every loan it offers.

• You choose each loan from a due diligence pack, after HomeSec has assessed it against a 50-point checklist.
• You are named on the registered mortgage (or caveat, where that is the security) for your exact contribution.
• Loans are short term business loans of 1 to 12 months, secured by first and second mortgages over Australian real estate.
• The maximum LVR is 80% on residential property, lower on commercial.
• There are no development or construction loans.
• Principal and interest are paid directly to your own bank account.
• Returns are 12% to 18% p.a. on the loans you choose, set loan by loan.
• If you need to exit early, HomeSec will buy out your share and repay your principal. There is no pool to freeze.

That model is not for everyone. It is limited to wholesale and sophisticated investors, who choose how much to put into each loan, and you build diversification loan by loan rather than getting it automatically. Borrowers can still default. But the structure answers most of the questions ASIC has been asking the sector, and it lets you check the answers yourself.

What is the bottom line on private credit in Australia?

Private credit can be a strong source of income. It can also concentrate risks that investors do not see until a fund gates. The difference usually comes down to what secures the loans, whether construction is involved, whether withdrawal promises match loan terms, and whether you can see and verify what you own.

HomeSec has lent its own money since 2004 and is a founding member of the Australian Short Term Lenders Association. If you’d like to see how a single, secured loan compares with the fund reports you receive today, register your interest and our Funding Manager will be in touch.