Summary
Private credit is lending arranged outside the traditional banking system. In Australia, it usually involves non-bank lenders or asset managers raising capital from investors and lending it directly to businesses or individuals. Returns are generally driven by loan interest rather than daily market pricing, which is one reason some investors use private credit for income and diversification.
The sector has grown as banks have become more restrictive in certain areas of lending, but private credit also carries real risks — so consider things like credit quality, liquidity, valuation and manager discipline.
What Is Private Credit? How It Works In Australia
Private credit is lending provided by non-bank lenders or investment managers rather than traditional banks. Instead of buying shares in a company or trading bonds on a public market, investors allocate capital to a fund that makes loans directly to borrowers. Investors then generally receive income from interest payments made on those loans. The Reserve Bank of Australia describes private credit as “bilaterally negotiated lending to businesses arranged by non-banks”, typically asset managers connecting investors with borrowers outside traditional bank channels.
For investors, the appeal is usually income, diversification and lower exposure to daily market price movements. For borrowers, the appeal is often speed, flexibility and access to funding where bank criteria may not fit their circumstances.
What Does Private Credit Mean in Simple Terms?
In simple terms, private credit means lending money rather than owning assets.
That matters because private credit is often confused with other investments:
- Private credit = lending directly, usually in an unlisted structure and often held to maturity rather than traded daily
Now compare private credit to:
- Private equity = buying ownership stakes in companies
- Corporate bonds = lending through securities that trade publicly
The direct answer is private credit is a different exposure with different return drivers and risks.
How Private Credit Works
At a high level, private credit usually follows this process:
- Investors allocate capital to a private credit fund
- The fund lends that capital to borrowers
- Borrowers make repayments of interest and principal over time
- Investors receive distributions, often monthly or quarterly
Unlike listed shares or bonds, private credit investments are generally:
- Unlisted
- Less liquid
- Not priced continuously on public markets
- Primarily income-focused rather than growth-focused
That does not make private credit “risk free”. It simply means the return profile is usually driven more by loan performance, structure and underwriting quality than by daily market sentiment.
Why Private Credit Has Grown in Australia
Private credit has expanded in Australia for both structural and investment reasons.
The Reserve Bank says private credit has grown as an alternative source of finance for borrowers with specialised or complex funding needs, while non-bank lending has also grown as banks have become more selective in some parts of the market. In the RBA’s 2024 bulletin, it estimated there was around $40 billion in private credit outstanding in Australia, equal to around 2.5% of total business debt.
At the same time, the RBA has noted that non-bank lending has grown strongly in recent years, especially in segments where traditional bank lending has been more constrained.
ASIC’s 2025 surveillance report also noted rapid growth, describing Australia’s private credit market at around $200 billion in assets under management, supported by investor demand for diversification and yield, moderation in bank lending, and greater retail participation.
Common Drivers of Private Credit Growth in Australia
- More selective bank lending in some segments
- Demand from borrowers with non-standard or specialised funding needs
- Investor demand for income and diversification
- Growth in private market investment both globally and in Australia
What Types of Borrowers Use Private Credit?
Private credit can be used across a wide range of borrowers and structures, but in Australia it is commonly associated with:
- Small and mid-sized businesses
- Property development and commercial real estate
- Borrowers with complex income or non-standard circumstances
- Borrowers requiring speed, flexibility or tailored structure
This is one reason private credit should not be viewed as one uniform asset class. The risk profile can vary significantly depending on how each manager will create portfolios comprising:
- borrower types,
- security types,
- sector targets,
- each loan’s place in the capital structure,
- and the manager’s underwriting discipline.
What is Real Estate-Backed Private Credit?
A large part of Australian private credit comprises loans secured against property.
In a real estate-backed private credit strategy:
- a loan is made to a borrower,
- the lender takes security over real estate, often by mortgage,
- and investor outcomes depend not only on repayments, but also on the quality and value of the underlying asset.
Key Concepts That Matter
1) Senior secured lending
A senior secured loan sits higher in the capital structure, meaning the lender is generally repaid before more junior investors if a borrower gets into difficulty.
2) Loan-to-value ratio (LVR)
LVR measures the size of the loan relative to the value of the security property. Lower LVRs generally provide more buffer against a fall in property values, although they do not eliminate risk.
3) Security over a tangible asset
Where lending is backed by property, the lender has recourse to a real asset if the borrower defaults. That may improve downside protection compared with unsecured lending, but recovery outcomes can still depend on valuations, legal process, timing and market conditions.
What Drives Returns in Private Credit?
Private credit returns are usually driven by contractual income, not by daily share-market movements.
The main drivers of returns are:
Interest income
Borrowers pay an agreed interest rate, and that is typically the primary source of return.
Credit risk premium
Because private credit often serves borrowers or structures outside standard bank lending, investors may be compensated with higher income for taking additional credit risk.
Illiquidity premium
Private credit is commonly less liquid than listed bonds or cash investments. Investors may therefore expect additional return for tying capital up for longer or accepting withdrawal limitations.
That means outcomes are commonly shaped by:
- borrower performance,
- asset quality,
- covenant protections,
- loan seniority,
- and the manager’s ability to originate, monitor and manage risk.
Why Some Investors Use Private Credit for Income
One of private credit’s defining features is that it can provide contractual income from loan repayments rather than relying on capital growth.
That is why some investors use private credit to seek:
- regular income distributions
- diversification away from listed equities
- lower sensitivity to daily market volatility
- exposure to lending that sits outside public markets
For income-focused portfolios, this can be relevant because listed markets can be volatile even when underlying borrower cash flows remain sound. But this should not be confused with a guarantee of capital or income. Private credit is still an investment exposure and can lose value if loans perform poorly, collateral values fall, or liquidity tightens.
What Are the Risks of Private Credit?
Private credit can play a useful role in portfolios, but it is not a simple substitute for cash or a bank deposit.
Key risks include:
Credit risk
The borrower might fail to make interest or principal repayments.
Security or collateral risk
If the loan is secured against property or another asset, that asset may fall in value or take time to realise.
Liquidity risk
Many private credit structures are less liquid than listed investments, and withdrawals may be restricted, delayed or unavailable in stressed conditions. ASIC has highlighted liquidity management as a critical issue in private credit funds.
Valuation risk
Because private credit assets are not traded on public markets every day, valuations may be less transparent and more dependent on manager methodology and judgement. ASIC has specifically identified valuation practices as an area investors should scrutinise.
Manager risk
Private credit is heavily dependent on manager capability: underwriting standards, governance, diversification, transparency, servicing and workout experience all matter.
Private Credit vs Other Investments
| Investment type | What you’re doing | Return driver | Liquidity | Key risk difference |
| Private credit | Lending directly via unlisted structures | Interest income and loan repayment | Usually lower | Credit, liquidity and manager risk |
| Private equity | Owning part of a private business | Business growth and exit value | Usually low | Equity-like business risk |
| Corporate bonds | Lending through traded securities | Coupon income plus bond pricing | Usually higher than private credit | Market pricing and interest rate risk |
| Term deposits | Depositing money with an Authorised Deposit-taking Institution for a fixed term | Fixed deposit interest | Generally predictable at maturity, subject to term | Lower return potential, but FCS protection up to limits |
What Private Credit Means for Retirees and Income-Focused Investors
For investors approaching retirement or already drawing income, the challenge is not just generating return — it is generating dependable cash flow while managing inflation, sequencing risk, liquidity needs and capital preservation.
That is why private credit is increasingly part of the retirement income conversation:
- it may provide contractual income
- it can add diversification away from listed markets
- and in some it may be designed to produce low-volatility income-focused outcomes
However, retirees also need to weigh:
- whether access to capital is needed at short notice,
- whether the structure matches their time horizon,
- and whether the underlying risks are clearly understood. Private credit can support income objectives, but it is not a substitute for emergency liquidity or guaranteed cash reserves.
Why Manager Quality Matters in Private Credit
Private credit is not a passive asset class. Outcomes are shaped by:
- origination quality,
- portfolio construction,
- diversification,
- servicing and arrears management,
- transparency,
- and governance.
For readers evaluating providers, useful questions include:
- How experienced is the manager in this asset class?
- What security sits behind the loans?
- How diversified is the portfolio?
- How often is performance and asset data reported?
- What are the fund’s liquidity terms?
- How are impaired assets handled?
La Trobe Financial’s features:
- more than 70 years of operating history,
- more than 130,000 investors globally,[1]
- more than $24 billion in assets under management, and
- a long-running focus on private credit and retirement-oriented income solutions.
Additional credibility signals include monthly portfolio reporting, detailed product information, and its investment and retirement income insight library.
[1] Total investors is calculated by adding all individual & joint investors (which includes some investors with a current zero balance in their account) to reasonable estimates of investors investing via trusts or SMSFs.
Final Thoughts
Private credit is now an established part of Australia’s broader funding and investment landscape. It gives borrowers an alternative to traditional bank finance and gives investors access to income-producing lending outside public markets. The RBA estimates private credit outstanding at around $40 billion, or around 2.5% of business debt, while ASIC’s more recent work points to rapid broader market growth in assets under management.
For investors, private credit may offer:
- access to income-focused returns,
- diversification away from listed markets,
- and exposure to parts of the economy that are less accessible through public securities.
But it also requires careful attention to credit quality, liquidity, security, valuation and manager capability. That is where experience, transparency and discipline matter most.
Frequently Asked Questions
Private credit in Australia generally refers to loans arranged by non-bank lenders or asset managers rather than traditional banks. Investors provide capital to a fund or vehicle, and that capital is lent directly to borrowers in return for interest income. The Reserve Bank of Australia describes private credit as bilaterally negotiated lending to businesses arranged by non-banks, typically asset managers connecting investors with borrowers outside the traditional banking system.
No. Private equity involves owning part of a company and seeking returns from growth in the business. Private credit involves lending money and typically seeking returns from contractual income and repayment of principal.
Private credit has grown as banks have become more restrictive in some lending segments, while borrowers with specialised or complex funding needs have increasingly looked beyond traditional banks. The RBA says private credit has grown as an alternative source of finance, and ASIC has also pointed to investor demand for diversification and yield as a key driver of market expansion in Australia.
Investors usually receive distributions funded by borrower interest payments and, over time, repayment of principal. The return profile is income-led rather than capital-growth-led, with outcomes shaped by loan performance, asset quality and manager discipline rather than daily share-market pricing.
A term deposit is a bank deposit with a fixed term and, if it is held with an eligible authorised deposit-taking institution, protection under the Australian Government’s Financial Claims Scheme up to the relevant limits. Private credit is an investment exposure to loans and does not have that government guarantee.
References
- Reserve Bank of Australia, Growth in Global Private Credit, Bulletin, 17 October 2024.
https://www.rba.gov.au/publications/bulletin/2024/oct/growth-in-global-private-credit.html - Reserve Bank of Australia, Non-bank Lending in Australia and the Implications for Financial Stability, Bulletin, 16 March 2023.
https://www.rba.gov.au/publications/bulletin/2023/mar/non-bank-lending-in-australia-and-the-implications-for-financial-stability.html - Australian Securities and Investments Commission, REP 820: Private credit surveillance: retail and wholesale funds, 5 November 2025.
https://download.asic.gov.au/media/q42bgduw/rep820-published-5-november-2025.pdf - Australian Securities and Investments Commission, REP 814: Private credit in Australia, 22 September 2025.
https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-814-private-credit-in-australia/ - Australian Prudential Regulation Authority, APRA Explains – the Financial Claims Scheme.
https://www.apra.gov.au/apra-explains-financial-claims-scheme - Moneysmart, Term deposits.
https://moneysmart.gov.au/investments-paying-interest/term-deposits
Any advice is general and does not consider your personal circumstances.
