Business Purpose Declaration

What it is

A Business Purpose Declaration (BPD) is a written declaration that a credit contract is being entered into wholly or predominantly for business or investment purposes (other than investment in residential property). It is recognised by section 13 of the National Credit Code as creating a presumption that the credit is not regulated by the NCCP Act.

Why every funder requires one

Where the borrower is a body corporate (such as a Pty Ltd company), the National Credit Code does not apply at all because the debtor is not a natural person — see section 5(1) of the Code. A Business Purpose Declaration is therefore not statutorily required on these loans. Every panel lender and private investor we work with still insists on a BPD as belt-and-braces protection:

• —It is contemporaneous evidence of the genuine business purpose of the funds.
• —It is a contractual acknowledgement that the funds will not be applied for personal, domestic or household purposes.
• —It protects against any later argument that the corporate-borrower structure was an avoidance device (section 13(3) of the Code).

What it says (illustrative — not binding)

The borrower declares that the credit is to be provided wholly or predominantly for business or investment purposes (other than investment in residential property). The borrower acknowledges and agrees that no part of the credit will be applied for personal, domestic or household purposes, and that this declaration is provided to induce the lender to enter into the loan. The borrower indemnifies the lender against any loss, claim, regulatory action or cost arising from any misapplication of the funds for a purpose to which the National Consumer Credit Protection Act 2009 (Cth) would otherwise apply.

Illustrative wording only. The binding wording is the version set out in the loan documentation pack provided by the funder.

When you sign it

The borrower signs the Business Purpose Declaration at the same time as the rest of the loan documentation, before drawdown. It is part of the documentation pack alongside the loan agreement, mortgage and any guarantees.

Important warning

Section 13(3) of the National Credit Code provides that a Business Purpose Declaration is ineffective if the lender (or, where relevant, the broker who arranged the loan) knew, or had reason to believe, that the credit was in fact applied for a non-business purpose. Borrowers must not sign a Business Purpose Declaration if any part of the funds is intended for personal, domestic or household use. We will not knowingly arrange a loan in those circumstances, and any borrower who does so is in breach of the loan agreement and indemnifies the lender in full against any consequence.