The 4 C’s of Lending – The Private Credit Context

Private lending vs. bank lending are two distinct financial avenues, each with its own strengths and weaknesses. For Australian borrowers and investors, understanding how these two approaches differ is critical to making informed decisions. In this article, we’ll break down the differences between private lending and bank lending through the lens of the 4 C’s of lending — Capacity, Collateral, Capital, and Character — and highlight how Bowery Capital’s private credit solutions provide a more flexible, relationship-focused alternative to traditional banks.

What Are the 4 C’s of Lending?

The 4 C’s of lending are a universally recognised framework that lenders use to assess risk and determine loan eligibility. While both banks and private lenders use these same principles, their interpretations and applications can differ dramatically. Let’s explore these differences.

Capacity: The True Ability to Repay

The Bank Approach
Traditional banks often evaluate capacity through rigid formulas and standardised calculations. Borrowers are assessed based on credit scores, income multipliers, and serviceability ratios. If a borrower’s financial profile doesn’t fit neatly into these metrics, their loan application may be declined — even if their overall business model is strong.

The Bowery Capital Advantage
At Bowery Capital, capacity assessment goes beyond the numbers. We take a multi-dimensional view, analysing a borrower’s financial story, track record, and future income potential. For instance, a property developer with temporary cash flow challenges may still demonstrate strong capacity through a history of successful projects and diversified income streams.

✅ Key takeaway: Bowery Capital reads between the lines to understand a borrower’s true ability to service and repay a loan, rather than just relying on current income.

Collateral: Looking Beyond the Valuation Report

The Bank Approach
Banks often treat collateral as a static figure based on formal property valuations. Their assessment of risk revolves around this number, with little room for nuance or context.

The Bowery Capital Advantage
Bowery Capital views collateral as a dynamic asset with its own narrative. We consider location, market trends, asset liquidity, and future development potential. For example, a Melbourne property near upcoming infrastructure projects could hold far more value than a bank’s valuation report might suggest.

✅ Key takeaway: Bowery Capital assesses collateral with an eye for real-world value, not just the numbers on a piece of paper.

Capital: Skin in the Game

The Bank Approach
Banks often reduce capital contribution to a simple percentage, requiring borrowers to show a minimum equity stake. A low percentage may lead to loan rejection, regardless of the borrower’s broader financial strength.

The Bowery Capital Advantage
Bowery Capital looks at capital more strategically. We evaluate how a borrower’s financial commitment fits into their overall position. In many cases, a lower equity contribution from an experienced developer with diversified assets may be more compelling than a larger contribution from a less seasoned borrower.

✅ Key takeaway: Bowery Capital considers capital as part of a bigger financial picture, not just a checkbox exercise.

Character: The Trust Factor

The Bank Approach
Traditional banks often assess character based on credit scores, default histories, and surface-level indicators. This approach can overlook the borrower’s integrity, transparency, and business acumen.

The Bowery Capital Advantage
At Bowery Capital, we place a premium on relationships and trust. We assess character through long-term partnerships, market reputation, and how borrowers have navigated challenges in the past. This deeper understanding often proves more predictive of loan success than any credit score.

✅ Key takeaway: Bowery Capital’s character assessment is about building genuine trust and recognising the value of professional integrity.

Private Lending vs. Bank Lending: A Side-by-Side Comparison

When choosing between private lending and traditional bank loans, understanding the key differences can help you make the right decision for your commercial property project. Below, we compare approval speed, flexibility, and ideal use cases to highlight why private lenders like Bowery Capital are often the better choice for time-sensitive or unconventional projects.

The 4 C’s of lending are not isolated factors — they work together to paint a complete picture of lending opportunity and risk. While banks tend to treat them as separate boxes to tick, Bowery Capital understands how these elements interact to create tailored solutions for each borrower.

Example: A developer seeking funding for a cutting-edge urban renewal project may be rejected by a traditional bank due to rigid serviceability ratios. However, Bowery Capital might recognise their strong character, strategic capital deployment, and the project’s genuine income potential — offering a funding solution that makes sense for both the borrower and our investors.

✅ Key takeaway: Bowery Capital thrives on flexibility, relationship-building, and seeing the bigger picture.

Recommended External Resources

For readers seeking deeper insights into non-bank commercial lending and property development financing, these authoritative Australian sources provide valuable context:

1. Reserve Bank of Australia (RBA)
   Non-Bank Lending in Property Development
   Why it matters: Explains the growing role of non-bank lenders in Australia’s property market and associated risks.
2. APRA Guidelines
   Commercial Property Lending Standards
   Why it matters: Compares traditional bank requirements (e.g., presales thresholds) with non-bank flexibility.
3. ASIC Commercial Loan Dispute Guidance
   Resolving Commercial Loan Issues
   Why it matters: Clarifies borrower rights and dispute processes for non-bank commercial loans.
4. RBA Financial Stability Report
   Non-Bank Lending Risks
   Why it matters: Analyzes systemic risks in non-bank lending – critical for investors.
5. Pinsent Masons Legal Insights
   ASIC’s Scrutiny of Non-Bank Lenders
   Why it matters: Outlines upcoming regulatory changes affecting commercial lenders.

Frequently Asked Questions

1. Is private lending riskier than bank lending?
   Private lending carries different risks, not necessarily higher ones. While banks prioritise standardised metrics (e.g., credit scores), private lenders mitigate risk through deep due diligence on collateral potential, borrower track record, and market dynamics. For example, a developer’s past project success (like Bowery’s Melbourne case study) may offset short-term income gaps.
2. When should I choose private lending over a bank loan?
   Private lending is ideal when:
   Your project is time-sensitive (e.g., auction purchases).
   You need flexible terms (e.g., unconventional collateral or staged drawdowns).
   Your financials don’t fit rigid bank criteria (e.g., presales thresholds or credit history).
3. How do private lenders assess collateral differently?
   Banks rely on static valuation reports, while private lenders (like Bowery Capital) evaluate:
   Market liquidity: How quickly the asset can be sold.
   Future potential: Upcoming infrastructure, zoning changes, or occupancy improvements.
   Asset-specific risks: E.g., environmental factors or tenant mix.
4. Can I get a private loan with poor credit?
   Yes. Private lenders prioritise holistic assessments over credit scores. For instance, a borrower with a low credit score but a strong project track record (e.g., 5 successful developments) may still qualify based on collateral quality and equity contribution.
5. Are private lending rates always higher than banks’?
   While rates are typically higher, private loans offer speed and flexibility that banks can’t match. For time-sensitive commercial projects (e.g., land acquisition), the cost of delay often outweighs higher interest expenses.
6. How does “character” assessment differ between lenders?
   Banks focus on credit history, but private lenders evaluate:
   Transparency: How borrowers communicate during challenges.
   Industry reputation: Feedback from past partners or contractors.
   Commitment to the project: Skin in the game (e.g., personal capital invested).

Making the Right Choice for Your Project

When it comes to private lending vs. bank lending, the right choice depends on the nature of your project, your financial story, and the type of lending relationship you want to build. Traditional banks may suit some straightforward deals, but for more nuanced, time-sensitive, or innovative opportunities, Bowery Capital offers a compelling advantage.

At Bowery Capital, we specialise in helping Australian developers and investors unlock their potential with flexible, pragmatic private lending solutions.

Ready to explore your options? Contact our team today to learn how Bowery Capital could support your next project.

Bowery Capital is a leading private lender based in Melbourne, Victoria, providing tailored financial solutions that go beyond conventional banking restrictions.