Can I use a caveat loan for personal purposes?

Funding a business's working capital, paying business or company tax debts, settling an investment property, funding a development, buying equipment or stock, paying out business creditors, bridging a commercial settlement. The test is the predominant purpose of the loan. Paying a personal credit card, funding a holiday, buying a car for private use, renovating the family home or covering living expenses are personal purposes, regardless of what the declaration says.

If a loan is really for personal purposes, the lender needed a licence and had to comply with responsible lending. A loan made without that can be unenforceable, and the lender can face penalties. That is why private lenders require a business purpose declaration and why a specialist will not help you sign one that is untrue. It is also why a borrower who signs a false declaration has little protection if things go wrong.

A licensed non-bank lender offering a short-term secured loan with a proper assessment. A cash out refinance or a top-up with your existing lender, which is regulated and far cheaper. A second mortgage from a licensed lender. For a genuine short-term personal bridge, such as buying before selling, a regulated bridging loan from a bank or non-bank. All of these take longer than a caveat loan, which is the trade-off for being lawful and affordable.

Where a loan has both business and personal elements, the predominant purpose governs. A loan that is 70 per cent to pay a company's ATO debt and 30 per cent to clear personal cards is likely business purpose overall, but the lender will want the split documented. Sole traders and company directors often sit in this grey area and should have the purpose set out clearly in the loan file.