Dispelling the Myth: Private loans are not ‘No Doc’ loans

Contrary to common belief, loans funded by private lenders are not “no documentation” loans. Although private credit loans typically have shorter terms and offer flexible interest servicing options, they still require evidence of borrower solvency and capability to service payments.

This assurance is validated through an Accountant’s Declaration, which confirms the borrower’s financial stability without detailing income or expenses. While private loans may not demand full income disclosures, they are structured to ensure responsible lending, with options for interest servicing or prepayment tailored to meet individual borrower needs.

Evidence of borrower solvency

As part of the loan assessment process, a prudent private lender will need to evidence a borrower solvency and ability to service interest payments without distress or hardship.

The is verified in the form of an Accountants Declaration.

Bank and non-bank loans are usually extended for periods of up to 30 years. For these loans, the lender assesses the borrower’s ability to service /amortise the loan over the loan term. This involves assessment of the borrowers income sources and expenses.

Private credit loans are shorter term in nature with periods typically ranging from 3-36 months.

Generally, there is no obligation on the borrower to make principal reductions or amortise the loan.

Depending on the loan term and structure, borrowers have the option of either:

• Servicing interest for the full term; or
• Prepaying interest (in part) and servicing for the remaining term; or
• Prepaying interest for the full term (up to a maximum of 12 months).

Either of these options will require an Accountants Declaration. The options available are:

Option 1 – Servicing Letter

Under this option the borrower elects to service interest (in part or in full) for the loan term.

There is no servicing test. Neither the borrower nor the Accountant need to state an income figure. However, we need confirmation that interest payments can be serviced without any distress or hardship.

Option 2 – Non-Servicing Letter

Under this option the borrower elects to prepay interest for the entire loan term.

Again, there is no servicing test. Furthermore, the Accountant does not need to comment on the borrower’s ability to make interest payments.

As with the ‘Servicing Letter’ we require confirmation as to where there are any ATO obligations and if there is a payment arrangement.

What is not required:

1. Neither the borrower nor Accountant need to state a taxable income figure.
2. Neither the borrower nor Accountant need to declare any living expenses.
3. An acknowledgment the lender is relying on the Accountants letter in agreeing to make the loan to the Borrower.

For assistance

We would love the opportunity to chat to you regarding any scenarios or questions you might have for any of your clients seeking finance.  

Please contact the Business Development team at Vado Private to discuss any opportunities on the details below, or you can submit a scenario online via our website