Loan Note in Australia 2025: What Borrowers and Investors Need to Know

In 2025, Australia’s lending landscape is experiencing a notable shift. Loan notes are emerging as a flexible financing tool for both businesses and investors, thanks to changes in regulation and increased appetite for alternative debt instruments. But what exactly is a loan note, and how do the new rules impact Australians looking to borrow or invest?

What is a Loan Note?

A loan note is a legal debt instrument—a written promise that one party (the borrower) will repay a specified sum to another (the lender), usually with interest and within a set timeframe. Loan notes are commonly used in corporate finance, property development, and increasingly, peer-to-peer lending. They provide a way to formalise private loans, often with greater flexibility than traditional bank lending.

• Term and Repayment: Typically fixed, ranging from a few months to several years.

• Interest Rate: Fixed or variable, often higher than standard bank loans to reflect risk.

• Security: Can be secured (backed by assets) or unsecured.

• Transferability: Some loan notes can be traded or transferred, adding liquidity for investors.

Key Policy Changes in 2025

Recent regulatory reforms are making loan notes more accessible and transparent for Australians. The Australian Securities & Investments Commission (ASIC) updated its guidance in late 2024, focusing on clearer disclosure and risk management for retail investors. Meanwhile, the Treasury’s 2025 reforms have streamlined the classification of loan notes, impacting how they’re taxed and regulated:

• Improved Disclosure: Issuers must now provide standardised risk warnings and performance history, especially for loan notes offered via online platforms.

• Taxation Updates: The 2025 Federal Budget clarified the treatment of interest income from loan notes, aligning it with other fixed income products. For individuals, this means interest is taxed at marginal rates, while SMSFs continue to enjoy concessional rates.

• Retail Investor Access: Restrictions on who can invest in certain high-risk loan notes remain, but ASIC’s 2025 changes have created a new ‘sophisticated retail’ category, allowing more experienced investors to participate with enhanced protections.

Real-World Applications: Businesses, Investors, and Startups

Loan notes are proving particularly popular among SMEs and property developers seeking alternatives to bank loans. For example, a Sydney-based tech startup recently raised $2 million through a convertible loan note, offering early investors a fixed 8% return and the option to convert to equity if the company hits certain milestones. On the investor side, platforms like Plenti and LendInvest have seen a surge in demand for fractionalised loan notes, giving retail and SMSF investors access to property-backed debt with defined maturities.

• Small Business Growth: Loan notes let businesses secure capital for growth without diluting ownership.

• Property Development: Developers use loan notes to bridge funding gaps or pre-fund projects, attracting investors with attractive yields.

• Peer-to-Peer Lending: Everyday Australians can invest in diversified pools of loan notes, spreading risk across multiple borrowers.

Risks and Considerations in 2025

While loan notes offer opportunities, they also carry risks. Higher returns often mean higher default risk, especially with unsecured or subordinated notes. The new disclosure rules help, but due diligence remains essential. Investors should:

• Assess the issuer’s track record and financial health.

• Understand the note’s ranking in case of insolvency (senior vs. subordinated).

• Check for early repayment clauses or conversion features.

• Factor in tax implications and liquidity constraints.

For borrowers, loan notes can be a lifeline, but failing to meet repayment terms could mean loss of assets or loss of business control if conversion to equity is triggered.

The Outlook for Loan Notes in Australia

With regulatory frameworks catching up to innovation, loan notes are poised for continued growth in 2025. Whether you’re a business owner seeking capital or an investor chasing yield, understanding the evolving landscape is crucial. As platforms and regulation mature, expect loan notes to become an even more mainstream component of Australia’s financial toolkit.