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People often describe private lending as unregulated. That is shorthand for one specific point: the consumer credit regime does not apply to business lending. Plenty of other law does.
What does not apply
The National Consumer Credit Protection Act and the National Credit Code regulate credit provided to individuals and strata corporations for personal, domestic or household purposes, or to buy or improve residential investment property. Loans to companies, and loans for business purposes, are outside that regime. For those loans:
- The lender does not need an Australian credit licence.
- Responsible lending obligations, such as verifying that the loan is not unsuitable, do not apply.
- Code rights such as hardship variations and caps on certain fees do not apply.
More on where the line sits is in do companies need a credit licence lender.
What still applies
| Law | What it does |
|---|---|
| ASIC Act | Prohibits misleading or deceptive conduct and unconscionable conduct in financial services, including credit |
| Unfair contract terms regime | Can void unfair terms in standard form small business contracts, with penalties |
| Anti-money laundering law | Lenders must identify customers and report suspicious matters |
| Privacy Act | Governs handling of personal and credit information, for entities it covers |
| State property and land title laws | Set the rules for mortgages, caveats, notices before a mortgagee sale and the duty to sell properly |
| Corporations Act | Directors’ duties, insolvency, and rules for lenders that raise funds from investors |
| General contract law and equity | Penalties doctrine, unconscionability, and relief for guarantors who did not understand what they signed |
What that means for a borrower
You have fewer automatic protections than a home loan customer, and more responsibility to look after yourself.
- Get legal advice on the documents. Many lenders require it. Do it regardless.
- Know the total cost. Rate, fees, default rate and any exit fees. See comparing private loan offers.
- Check who you are dealing with. ABN, ASIC registration, a verifiable address, a solicitor acting for the lender.
- Do not sign a false business purpose declaration. See what happens if it is false.
- Ask about dispute resolution. Whether the lender is an AFCA member is a fair question.
Mortgagee duties
A lender enforcing a mortgage must follow the notice requirements in the relevant state and, when selling, take reasonable care to sell at market value or the best price reasonably obtainable, depending on the state. Those duties apply to private lenders exactly as they apply to banks.
Direction of travel
Regulators have looked at business-purpose lending used to avoid consumer protections, and at small business lending generally. The rules may tighten. A sound lender already behaves as though they have.
This is general information, not legal advice. The site disclaimer explains the limits of what Lienhouse provides.
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Get matched with a funderFAQ
Can I complain to AFCA about a private lender?
Only if the lender is an AFCA member. Credit licensees must be. Many business-only private lenders are not, which leaves the courts as the main avenue.
Do unfair contract terms laws cover business loans?
They can. Standard form contracts with small businesses are covered, subject to thresholds on the size of the business and the amount of credit.
Does the lender need an AFSL?
Lending alone does not require one. A lender that raises money from investors through a mortgage fund usually does, for the fund side of its business.