What Are the Rules for Commercial Loan Compliance?

A commercial loan does not come with the same consumer protections as a home loan, and that matters if you are buying your first place on a small deposit.

If you have been told a business loan might be a way in, it helps to understand what you would be giving up. This guide explains how commercial loan compliance works, so you can decide whether it suits your situation or whether a home loan is the safer path.

What Does Commercial Loan Compliance Mean?

Commercial loan compliance means meeting the rules that apply to lending genuinely and predominantly for business purposes, or for investment other than residential property. These rules are lighter than the rules for home loans. Loans to individuals to buy residential investment property are still covered by the National Credit Code. Loans for business or commercial purposes are not regulated by the National Consumer Credit Protection Act 2009 if they are genuinely and predominantly used for business.

That Act is the law behind responsible lending. For home loans, the National Credit Code applies to loans wholly or predominantly for personal, domestic or household purposes. So the purpose of the loan decides which rulebook applies, not the label a lender puts on it.

Fewer Consumer Protections on Commercial Loans

Loans that are genuinely and predominantly for business purposes are not subject to the responsible lending obligations that apply to home loans. Loans to individuals for residential investment property, or for a home, are still covered.

In practice, lenders still look closely at whether you can repay. Most commercial lenders will make inquiries, but what they ask and how they assess it can differ from lender to lender. A home loan has a set standard. A commercial loan relies more on the lender's own policy and on the terms in your contract.

The trade-off is that you may have fewer avenues if something goes wrong. Read the contract carefully, and ask about security, fees and what happens if you fall behind on repayments. Our commercial loans page explains the main structures.

Business Purpose Declarations: What You Are Signing

A business purpose declaration is a signed statement that the loan is for business use, and signing one can mean you lose home loan protections. If a borrower signs a declaration stating it is for business purposes, they may lose the protections of the Act.

It is not a formality. ASIC and the court have emphasised that business purpose declarations cannot be used as a box-ticking exercise. If a loan is really for your home, calling it a business loan does not change that.

As an example, consider a self-employed buyer who runs a small design studio and wants to buy a home with a small deposit. Part of the home will be used as an office, so they wonder whether a business loan is the way to go. The lender asks what the money is for. The answer is that the property will mainly be a home, so the loan is assessed as a home loan.

That outcome works in the buyer's favour. They keep the protections that come with a home loan, and they can look at low deposit home loans and self-employed borrowing options built for their situation. The business use of part of the home can be discussed with their accountant.

Why First Home Buyer Concessions Do Not Apply to Commercial Property

First home buyer duty savings in Victoria are for homes, not commercial property. The State Revenue Office says you must live in the home as your principal place of residence for at least 12 months within 12 months of settlement.

A shop, office or warehouse is not a home, so that concession does not apply. This means stamp duty on a commercial purchase will not get the first home buyer concession, so duty may be higher.

Duty rules change, so check the State Revenue Office website or ask your conveyancer before you commit. If you are weighing both options, our first home buyers page covers what is available for a home purchase.

Should a First Home Buyer Consider a Commercial Property Loan?

For most first home buyers with a small deposit, a home loan is the more suitable starting point. A commercial property loan generally suits someone buying a property for business use or as an investment, and the terms are set by each lender.

Commercial loans can suit buyers who already own a business and want to buy their own premises. The cost is less regulatory protection, plus the lender's own rules on how much deposit they need. Some lenders may ask for extra security, which means offering another asset to back the loan. That is a real risk if repayments become hard to meet.

If you are curious about commercial property later, you can build towards it. Many buyers start with a home, then look at commercial property loans once their deposit and income are stronger. Before then, the borrowing capacity calculator gives you a rough idea of where you stand.

Questions to Ask Before You Sign Any Commercial Loan

Before you sign, ask what the loan is classed as, what security the lender wants, and what happens if your income drops. Ask for the terms in writing and take the time to read them.

If the lender or broker asks you to sign a business purpose declaration, ask why. Be honest about what the money is for. If the answer is that it is mainly for a home, a home loan is likely the correct product, and it carries protections you would not want to give up.

Call one of our team or book an appointment at a time that works for you. We will talk through your deposit, your goals and which loan type fits, with no pressure and no jargon.

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