Why Fintech Is Disrupting Commercial Mortgage Lending in Australia

Commercial mortgages in Australia have historically been limited by what traditional banks will allow—the stereotype of the inflexible banker didn’t come out of nowhere.

Nathan Daly
February 8, 2022

Why Fintech Is Disrupting Caveat and Commercial Mortgage Lending in Australia

Commercial mortgages in Australia have historically been limited by what traditional banks will allow—the stereotype of the inflexible banker didn’t come out of nowhere. People are required to fill out extensive and invasive paperwork to acquire a loan, and depending on the assets they already possess, as well as the strength and security of their business plan, their application may still be rejected. As conservative organisations, banks are reluctant to loan funds to anyone with a less than stellar financial record—which, unfortunately, is most people. Regulations, market changes, and global recessions have further tightened lending restrictions.

But the advent of financial technology, or fintech, is opening up new opportunities to consumers.  Development of fintech in Australia is changing what is possible for lenders and consumers alike.

What Is a Commercial Mortgage Loan?

Commercial mortgages are generally used to buy a piece of commercial property (like a restaurant or a shop) or to fund a large-scale development. They tend to have much lower loan to value ratios (LVR) than residential mortgages, and the lending period is much shorter. The interest rates tend to be higher, as well, though this can vary depending upon the risk assessment.

Since the terms of the loan are more stringent, and the dollar amount is significantly higher, banks also conduct frequent reviews of the project. Until fintech came along, banks monitored and limited the options available on the market, making it almost impossible for people without extensive financial history to start a new business.

Fintech, Non-banks, and P2P Lending

A report by APRA on commercial real estate lending states, “Poorly underwritten, monitored, and controlled credit exposure to commercial real estate (CRE) borrowers have historically proven to be a key source of credit loss for banks.” As a result, APRA has further tightened the regulations and credit policies for which CRE projects most Authorised Deposit-taking Institutions (ADI) will finance.

There are three tiers of lending available to choose from when searching for a commercial mortgage. Tier one is a loan taken out through traditional means—through a bank or APRA (the Australian Prudential Regulation Authority), which is a supervisory authority committed to promoting “financial system stability in Australia.” These loans, which tend to have lower interest rates, are earmarked for the lowest risk investments.

Tier two is for non-bank lenders—their function is lending, and they do not offer the breadth of services that one finds at a bank. Tier two lenders include entities regulated by ASIC (the Australian Securities and Investments Commission). Therefore, tier two lenders are overseen by government-regulated bodies, but with less stringent requirements than banks.

The highest risk commercial mortgages tend to use tier-three lenders—person to person (P2P) loans. P2P loans go through less regulation and are offered by forward-thinking investors, such as individuals with a high net worth or private companies.

Fintech in Australia makes it simple for innovators to connect with the correct type of loan and the best-suited lenders. Using a tier two (non-bank lender) or tier three (P2P lending) are great options for businesses deemed to have a high-risk profile and subsequently have been declined by traditional banks.

Trust: An Integral Part of the Lending Process

The Big Four of Australia (Commonwealth Bank of Australia, Westpac Banking Corporation, Australia and New Zealand Banking Group, and National Australia Bank) have long dictated the standards of the market; however, this is changing now thanks to several factors.

The aftershocks of the 2008 global recession are still being experienced, and preventative measures have been put in place worldwide with the hope that another financial crisis will not have such a harsh impact. The Basel Committee on Banking Supervision (BCBS) introduced guidelines known as Basel III in 2010 as a response to the crisis. There is a newly amended version, known as Basel IV, which is rolling out over the next decade. Both sets of rules have caused financial institutions to tighten their regulations and become more risk-averse than ever before.


In December of 2017, a royal commission was formed to delve into the predatory practices of many banking institutions. Commonly known as the Banking Royal Commission (officially the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry) the findings were shocking. The culture of greed brought to light caused many people to feel  uncomfortable about participating in the status quo of lending.

Removing the human element is a large-scale and sweeping strategy  to deal with the problem of corruption—and one that has increased the popularity of fintech in Australia. Many current and prospective business owners find avoiding banks to be an attractive option, as do  potential investors for the creation of more investment opportunities.

Of course, banks will  not be eradicated. But as regulations tighten within Australia and on a global scale, alternative options will continue to look more attractive to the adventurous entrepreneur, as well as to the sceptics.  Engaging with old back-room dealers is becoming a tired practice.

Whether using a tier two or tier three lender to obtain a commercial mortgage, a prospective non-bank or P2P lender—finding the right broker to help settle the deal is one of the most critical choices you will make. Acumen Finance is a fintech inspired loan facilitation platform which offers assistance with commercial mortgages  outside of the traditional banking structure. Get in touch with the experienced team at Acumen Finance to discuss your project today.