VIC Do I Need an Australian Credit Licence?

[Damian77]

Hello,

I am interested in starting a "short term loan company" for "small businesses" only. They can get a loan from my company for whatever reason they need it for. If I am able to start this company, the loan range will be from $100 to $5000 from my own life savings. They can borrow for the following reasons; for venture capital, they need equipment, need to pay contractors or employees, paying business bills and so on.

My loan range will increase when my business expands. Again for businesses only, not personal use or for public use, unless they have a small business. I have heard that some short term business loan companies do not need an Australian Credit Licence. Since I am providing loans strictly to businesses, not to just anyone, do I need a ACL?

I have contacted a short term business loan company, they said they do not have a credit licence. I read on a whirlpool forum that someone started their short term business loan company without a credit licence and many other business loan companies do not list a credit licence on their website, only those who provide personal loans list a credit licence.

Also I have already talked to ASIC, they told me if I did not understand the link they provided, that I needed to seek legal advice, this company will operate in Australia only.

Please let me know

Thank you

Best Regards

 

[Shawna Davis]

In short, yes you will need a licence, it's a bit more complicated then just drawing up contracts. Seek legal advice before venturing down this path

 

[Damian77]

In short, yes you will need a licence, it's a bit more complicated then just drawing up contracts. Seek legal advice before venturing down this path

Hi Shawna,

Thanks for your reply, I thought if you are providing loans to businesses only, that you don't need a credit licence?

Have laws changed or something?

I recently just talked to a loan company that gives loans to businesses only and they said they don't have a credit licence. So why would I need a credit licence if I am only providing to businesses? And not to the public?

Again thank you for your help

All the best!

 

[Rob Legat - SBPL]

Shawna is incorrect.

If you are only lending for business purposes, you currently do not need an Australian Credit Licence - unless you are giving loans which will be used wholly or predominantly towards the (a) purchase, renovation or improvement of residential investment property or (b) refinancing of credit which has been used for the purposes of (a). There has been some discussion about extending the ambit of the National Credit Code, but it hasn't progressed past that.

The onus will be on you to investigate and prove the use. In any claim against you, the Code is deemed to apply unless you can prove otherwise (and trust me, it will).

 

[Damian77]

Shawna is incorrect.

If you are only lending for business purposes, you currently do not need an Australian Credit Licence - unless you are giving loans which will be used wholly or predominantly towards the (a) purchase, renovation or improvement of residential investment property or (b) refinancing of credit which has been used for the purposes of (a). There has been some discussion about extending the ambit of the National Credit Code, but it hasn't progressed past that.

The onus will be on you to investigate and prove the use. In any claim against you, the Code is deemed to apply unless you can prove otherwise (and trust me, it will).

Hi Rob,

Thank you for your reply. I thought so as I have done some researching myself. All I plan to do is provide $100 to $5000 loans to small businesses only from my own life savings, not to the public or to renovations or anything to do with someones property.

Any small business can use the loan whether it be $100 or $1000 for venture capital, equipment (supplies), stock, pay bills and employees. Those kinds of things. I do have some other questions to ask to make sure I am not doing anything wrong and I thank you for all your valuable help.

1. Can you please elaborate more on what you said " There has been some discussion about extending the ambit of the National Credit Code, but it hasn't progressed past that.The onus will be on you to investigate and prove the use. In any claim against you, the Code is deemed to apply unless you can prove otherwise (and trust me, it will)"

Just a simple explanation, please?

2. Can I charge an application fee per loan (example: loan amount $5000 = Application fee is; $200 and loan amount $300 = Application fee is; $70) or am I only allowed to charge a one off application fee for all loans?

3. How much interest can I charge?

4. Before I start this business do I need to do anything else besides registering a business name and ABN?

Just simple answers and explanations will do so I can understand it without us talking to much about it as I do not want to take up too much of your free time.

Best Regards

 

[Shawna Davis]

Perhaps I should have clarified. I thought the intended purposes were for building etc. In any case it would be wise to seek legal advice, you're walking a very thin line if you don't operate as a business.

If you start making money from interest, loan fees etc you have to inform the ATO if this is an above board business, but I'm sorry it sounds like you want to become a loan shark, no offence intended. In regards to your charges, I have seen small loan businesses charge up to $900 on a $3000 loan in lieu of high interest rates.

I cannot stress the importance of seeking legal advice with the business venture you plan on taking

 

[Rob Legat - SBPL]

In answer to your questions:


1. The National Credit Code contains a section which says that the Code is presumed to apply in any proceedings involving a credit contract where one of the parties claims it applies. In practical terms, this will always be by the borrower/regulator. It is then up to the lender to prove otherwise. Think of it as ‘guilty until proven innocent’.


A way of overcoming that presumption is to get a written declaration from the borrower before obtaining the loan stating that it is not for Code regulated purposes. This declaration is only effective if you can reasonably rely on it to be true, having made reasonable enquiries to establish its truth. You can’t rely on the declaration, for example, if you know the borrower is lying about the use of the funds.



2. Fees and charges on business loans are unregulated, but that doesn’t mean you charge whatever you like. Loan agreements are still contracts, and will be governed by contract law; such as you cannot charge a penalty under a contract.


Further, the unfair contract terms provisions in the Australian Consumer Law were recently extended to protect small business. While these don’t extend to upfront price, the way in which the fees are charged or contingency type fees (eg default, enforcement) are covered.


You’ll also need to check the overlap with the Victorian unfair contracts legislation.


3. Same as 2 above, with the exception that:


(a) Interest is an ‘up front’ charge, so the Australian Consumer Law won’t govern it; and

(b) You need to be very careful about how you charge a default rate of interest (if you do).



4. You’ll need to check your state requirements. In addition to those, assuming you’ve got all your loan documentation set up, you will need to register with AUSTRAC under the Anti-Money Laundering and Counter-Terrorism Financing Act. Credit provision is a registrable activity, requiring you to have the requisite programs in place and comply with the Know Your Customer requirements.

 

[Damian77]

Hi Rob,

Thank you for your help and my apologises for the late reply. I thank you a lot for all your free support. What you wrote sounds simple but I think it would be best if I wrote up a business plan and then I can provide it to you so than you know exactly what I am doing.

Then you can provide the exact opinions and you can tell me what I need to provide to the "AUSTRAC" for successful registration, what other laws I need to comply with and if I fit into the Know your Customer requirements. If I provide a business plan, we can both be on the same page.

If you can provide a email address that would be great. If we reach a certain stage where you think you have provided enough "free opinions", than please let me know your fee, if I can afford it I will pay it.

Thanks
Best Regards

 

[Rob Legat - SBPL]

Hi Damian. We've reached the limit of the 'free opinions'. If you're wanting me to review documents and processes, we're well and truly outside the 'steering you in the right direction' phase of things.

If you'd like to engage me professionally, here's my Lawtap link: Rob Legat, Clear Island Waters Lawyer: Book Online