Private Lending for Brokers: Disclosure, Business Purpose and Best Interests

Key takeaways

• The National Credit Code covers credit to individuals and strata corporations for personal, domestic or household purposes or residential investment property; "predominantly" means more than 50%.
• Loans to companies are not subject to the credit legislation, but ASIC has sued a lender it alleged used company borrowers to avoid the Code.
• The best interests duty (section 158LA) and the conflict priority rule (section 158LB) sit in Part 3-5A of the National Credit Act.
• ASIC's October 2026 review: at seven of eight aggregator groups, brokers recommended something other than the least expensive loan in more than 20% of cases - and the bigger the cost gap, the stronger the evidence needed.
• For a private bridging or caveat loan, write down the exit, its timeline, what happens if it slips, and why bank and non-bank options did not fit.
• Disclose every fee in dollars - lender, broker, legal, valuation, exit - and any commission the lender pays you.

When is a private loan regulated credit?

The regime follows the borrower and the purpose, not the type of lender. ASIC's summary of the National Credit Code says it covers credit contracts where the lender is in the business of providing credit, a charge is made, the debtor is a natural person or strata corporation, and the credit is provided wholly or predominantly for personal, domestic or household purposes, or to purchase, renovate or improve residential property for investment. A private lender is not exempt because it is private.

ASIC's FAQ on whether the credit legislation covers a loan adds the working detail: "predominantly" means more than a 50% consumer component, loans to companies are not subject to the credit legislation, and only loans to natural persons and strata corporations are caught.

The mixed loan shows why the purpose has to be evidenced line by line: move $60,000 from the business column to the renovation and the consumer part becomes 52%.

What does a business purpose declaration actually protect?

Section 13 of the National Credit Code, in Schedule 1 to the National Consumer Credit Protection Act 2009, deals with presumptions about whether the Code applies. In general terms, a declaration by the borrower that the credit is for business or investment purposes creates a presumption that the Code does not cover the loan - but the presumption does not hold where the credit provider, or a person the regulations prescribe, knew or had reason to believe, or would have known after reasonable inquiries, that the money was really for a consumer purpose. Get legal advice on the exact wording for your files.

So the declaration is only as good as the inquiries behind it. If the file shows the money paying out a home loan, or the business is a shell, a signature will not change the answer. Our explainer on what a business purpose declaration is covers the borrower's side.

ASIC has tested the edges in court. It has brought proceedings alleging that a private lender required a company to be the named borrower even where the company had no genuine interest in the loan, that some borrower companies had minimal assets or were set up shortly before settlement, and that the lender knew or ought to have known the money was really for personal, domestic or household purposes such as a home. Those are allegations, which the lender denies, and the outcome of any one case is for the court. The lesson for brokers does not depend on it: as ASIC's guidance on when the credit legislation covers a loan makes plain, a company name on the contract does not settle which regime the loan is under.

How does the best interests duty work on a private loan?

Part 3-5A of the National Credit Act holds the best interests duty for mortgage brokers (section 158LA) and the conflict priority rule (section 158LB). ASIC's RG 273, issued in June 2020, explains how ASIC assesses compliance. ASIC's October 2026 report, REP 840, describes the duty as the mortgage broker's duty to the consumer when providing credit assistance in relation to credit contracts, and notes licensees must take reasonable steps to ensure their representatives comply (section 158LE).

On a regulated private loan, the duty covers the recommendation itself. Private money usually costs far more than bank money, so the file has to show why it was the right answer for this client. ASIC's media release on the review puts it plainly: "The greater the cost difference, the stronger the evidence needed." The review covered 13 credit licensees in eight large aggregator groups, responsible for about two-thirds of broker representatives, using data from 1 April 2023 to 31 March 2025; seven of the eight groups reported brokers recommended something other than the least expensive loan in more than 20% of cases.

On a business-purpose loan outside the Code, the statutory duty generally does not attach - but hold yourself to the same standard of recommendation anyway. Purpose can be challenged after the event, and a file that already shows the alternatives is your strongest defence. Our piece on the best interests duty five years on covers what good files look like.

How should you document the exit and the alternatives?

Private loans are short loans, and the exit is the credit decision. Take an illustrative regulated deal: individuals buying their next home before selling the current one borrow $600,000 of private bridging money for nine months, at 1.1% a month with interest capitalised monthly. Fees are a 2% lender establishment fee ($12,000), a 1% broker fee ($6,000) and $4,500 of legal and valuation costs. All figures are examples, not offers.

A three-month slip costs $22,090, and 1.1% a month compounds to about 14.03% a year. Put both columns on the file, along with:

• the exit (sale of the current home), with an agent's appraisal, the listing agreement and a realistic sale period;
• the buffer: what the sale must achieve after costs to clear the debt, and what happens if it does not;
• the alternatives compared - a bank or non-bank bridging product, selling first, a smaller loan - and why each was set aside;
• any extension, default interest or exit fee terms.

The bridging finance calculator models peak debt and end debt for exactly this check, and our guide to exit strategies for short-term loans covers refinance exits.

What fees and commissions should you disclose?

For regulated credit assistance, the National Credit Act has its own disclosure steps, including the credit guide of credit assistance providers (section 113) and the quote for providing credit assistance (section 114), with rules on fees and remuneration elsewhere in Part 3-1. Follow your licensee's process for each.

On every private loan, regulated or not, put every cost in dollars in front of the client before they commit: lender establishment fee, lender's legal costs, valuation, your broker fee, any monthly or line fee, discharge and exit fees, extension fees, default interest, and the commission the lender pays you. Our breakdown of private loan fees lists the usual lines. A business borrower outside the Code has fewer statutory documents, but general law, and the prohibitions on misleading and unconscionable conduct, still apply - which is exactly what ASIC's recent court actions in this area have alleged.

How do you manage conflicts in private lending?

ASIC's page on general conduct obligations says credit licensees must engage in credit activities efficiently, honestly and fairly, and manage conflicts of interest. REP 840 describes the conflict priority rule as requiring licensees and credit representatives to prioritise consumers' interests when there is a conflict. Private lending has more conflicts than most.

What should be on file for every private loan?

1. Borrower identity and entity documents, and who the credit is really for.
2. The purpose, evidenced by line: invoices, contracts, payout letters, tax notices.
3. Your conclusion on whether the loan is regulated, and why.
4. Any business purpose declaration, with the inquiries you made before it was signed.
5. The alternatives compared, with cost in dollars, and why each was set aside.
6. The exit, its evidence, its timeline, and the cost if it slips.
7. Every fee and commission, disclosed in dollars, with the client's acknowledgement.
8. Any conflict, how it was disclosed and how it was managed.

A file like this protects the client, the lender and you. Our guide to whether private lenders are safe and regulated is a useful explainer to share with clients who ask. If you want more business and property deals to work, Finance Providers on ADS can ask about loan requests from $100,000 that borrowers post.

Frequently asked questions

Does the best interests duty cover business-purpose private loans?

Generally the statutory duty attaches to credit assistance for regulated consumer credit, and a loan predominantly for business purposes that sits outside the Code is generally outside it too. But purpose is judged on substance and can be challenged later, so document why the loan is for business, and apply the same standard of recommendation either way.

Is a business purpose declaration enough on its own?

No. A declaration creates a presumption that the Code does not cover the loan, but it does not hold where the lender, or a prescribed person, knew or had reason to believe, or would have found out after reasonable inquiries, that the money was really for a consumer purpose. The inquiries on the file matter more than the signature.

What is the conflict priority rule?

It is section 158LB of the National Credit Act, alongside the best interests duty in Part 3-5A. ASIC describes it as requiring licensees and credit representatives to prioritise consumers' interests when there is a conflict of interest. In private lending, that means brokerage, related lenders and referral fees must never drive the recommendation.

How should a broker document a private loan exit strategy?

Name the exit, evidence it and cost the delay. For a sale exit, file the agent's appraisal, the listing agreement and a realistic sale period. Show the debt at exit, what the sale must clear, and the extra cost if it slips: in the illustrative bridging example, three extra months add $22,090. Record the alternatives compared and why they did not fit.

Do brokers have to disclose commission on private loans?

For regulated credit, the National Credit Act's disclosure steps for credit assistance apply, including the credit guide and quote, so follow your licensee's process. For business-purpose loans, disclose anyway: commission, broker fees and lender fees in dollars, before the client commits. It manages the conflict and avoids any suggestion the client was misled about cost.

Related reading

• What Is a Business Purpose Declaration?
• Best Interests Duty, Five Years On
• Exit Strategies: How Short-Term Loans Get Repaid

Sources

• National Credit Code: when the Code covers a credit contract — Australian Securities and Investments Commission
• FAQs: Does the credit legislation apply? — Australian Securities and Investments Commission
• National Consumer Credit Protection Act 2009 (including Schedule 1, National Credit Code) — Federal Register of Legislation
• RG 273 Mortgage brokers: Best interests duty — Australian Securities and Investments Commission
• REP 840 Mortgage brokers: Review of best interests duty and complaints handling practices (October 2026) — Australian Securities and Investments Commission
• 26-240MR ASIC review finds room for improvement in mortgage brokers' best interests duty practices — Australian Securities and Investments Commission
• Credit: General conduct obligations — Australian Securities and Investments Commission