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The business purpose declaration is a short form with serious consequences. It is the document that separates regulated consumer credit from unregulated business credit. This page covers what happens when it is signed and is not true.
What the law says, in outline
Under the National Credit Code, credit is presumed to be regulated unless the contrary is shown. A declaration in the prescribed form, signed by the borrower, creates a presumption that the loan is for business or investment and so is not regulated. That presumption falls away if the lender, or someone who dealt with the borrower on the lender’s behalf, knew or had reason to believe the money was really for personal use, or would have known had they made reasonable inquiries.
Consequences for the lender
- The declaration is ineffective, and the loan may be treated as regulated consumer credit.
- A lender without an Australian credit licence may then have engaged in unlicensed credit activity.
- Responsible lending and disclosure obligations that were not met can lead to penalties, compensation and orders affecting interest and fees.
This is why a careful lender does more than collect a signature. Expect questions about the business, the ABN, how the funds will be used, and often payment of funds directly to the business creditor, the ATO or a business account.
Consequences for the borrower
- Signing a statement you know is false can be an offence in its own right, and may amount to obtaining credit by a false statement.
- You may have given up protections you were entitled to, such as hardship variation rights, and have to go to court to get them back.
- The loan still has to be repaid. A false declaration does not cancel the debt.
- If a dispute arises, your own signed declaration will be the first document the other side produces.
Consequences for intermediaries
Inducing a person to make a false or misleading declaration is an offence. That applies to brokers, introducers and lenders’ staff.
Genuine business purposes
| Usually business | Usually not |
|---|---|
| Paying business tax debts | Paying personal credit cards |
| Working capital, wages, stock | Renovating your own home |
| Buying equipment or a business | A holiday, a car for private use |
| Settling a commercial or development purchase | Buying a home to live in |
Mixed purposes
Where a loan has both business and personal elements, the predominant purpose decides. Be accurate about the split. If the personal part is the larger share, a licensed consumer lender is the right place to go.
The practical point
Lienhouse arranges funding for companies and trusts with genuine business purposes. If the real need is personal, this is the wrong product, and a declaration will not fix that. General information, not legal advice.
We match you with a funder and email you their introduction. Reply to it and they’ll be in touch.
Get matched with a funderFAQ
Can a broker or lender tell me to sign one to get approved?
No. Inducing someone to make a false or misleading business purpose declaration is an offence under the National Credit Code. Walk away from anyone who suggests it.
What if only part of the loan is for business?
The test is the predominant purpose: more than half the funds, or the main use over time. If most of the money is for personal use, the declaration would be false.
Does the declaration apply to companies?
A loan to a company is already outside the Code, because the Code covers credit to individuals and strata corporations. Lenders still commonly take a declaration as evidence of purpose.