Forums / Getting Technical / Finance / If I have money to lend how do I find borrowers

Viewing 18 posts - 21 through 38 (of 38 total)
  • Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    Once you start lending to ordinary folks you then deemed to be in the business of money lending and thus need to be licensed.

    Hi Ben

    I think this is where things are getting very unfamiliar to me.

    Can you let me know what license / gotcha’s that need to be careful with the below scenario:

    ———————–
    What if say, the scenario is you are a property investor, and you specialize in “buy – renovate – sell” scenario.

    Let’s say you repeat this strategy 3 times a year and you operate your property investing using a Trust.

    You dad is retired already but he has some cash savings… or you have a GP who knows you well and he doens’t like the idea of his cash sitting in banks earning little interest.

    Instead of going to banks, your dad / GP is happy to lend you his personal cash savings to cover your renovation cost, and the condition is after you complete your renovation and sell your house, you return the money to your dad / GP with some added interest.

    Your dad /GP then declares that as part of his personal income when doing tax return each year.

    In this case, your dad / GP is not running a money making or financial business, they are just lending their personal money to you at time of your need and they legally declare all those extra little interest earned when doing their Tax Return.

    But at the other hand, there is money going back and forth between your Trust and your dad / GP’s personal accounts, as much as 3 times per year. In the case of your dad, you can say “parents are parents and my dad is just helping me out”, but in the case of your GP, what’s the go there?

    In this circumstance, is your Dad / GP considered to be “in the business of lending money”?

    What is the definition of “in the business of lending money”? I see a quote somewhere that says “….Basic principle of business lending which involves lending money to many various (not family) parties for profit with which you make a living off”

    In the scenario above, your Dad is already retired and just decides to help you out with renovation when you are investing… your GP has a professional job of his own (being a doctor with high pay) and he just wants some extra income, but he is also not “running a business” to lend money, he is just happy to help you with renovation cost provided if he can get some extra interest. So are they considered to be “in business of lending money”? Or is this a bit of a grey area and can be argued with?

    Where do we draw the line as far as “in the business of lending money” is concerned?

    The reason why I want to get that clarified is, investibly, in the future, I am sure that I will run into situations where I do not have enough cash myself to do a renovation and I need to borrow money. Of course I do not want to restrict my choices to have to go to banks every time. If there are angel investors other than banks who are willing to lend money with more flexible / negotiable conditions, then why not?

    Likewise, I may for a period of time not be able to find the right deal but if somebody else has a deal but needs money, then lending a small portion of mine to earn some extra return is something I might consider too. eg: I trade properties via my Trust, but market is correcting itself for a period of a few months so my Trust activities are quiet during those a few months. During that time, somebody else has a good deal but they need to borrow some money to cover part of the cost… then I might consider provide that money for that somebody if that somebody can provide me x% of interest. In this case, is my Trust considered to be “in business of lending money”?

    But of course, I want to make sure what I do is legal and ethical.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Your dad should seek legal advice.
    But if he is lending to a corporate trustee the National Credit Code does not apply as the borrower is not a natural person.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    Your dad should seek legal advice.
    But if he is lending to a corporate trustee the National Credit Code does not apply as the borrower is not a natural person.

    My Trust / Corporate Trustees is overseas.

    In this case, does he need to send money directly to my Trustee (in which case the National Credit Code will not apply)? In other words: Dad’s account –> send international money to my trustee

    Or can he send to my Trustee via my account? Dad’s account –> my account –> send international money to my trustee

    Does it make a difference from a lending / credit / license / law’s point of view which method is used as long as it is documented clearly that my corp trustee is the ultimate receiver of the money?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    If the lender is based overseas not covered by NCCP.

    This is why we and other lenders have a separate lending entity in Shanghai doing Lodoc Non Resident Loans in Australia.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    If the lender is based overseas not covered by NCCP.

    This is why we and other lenders have a separate lending entity in Shanghai doing Lodoc Non Resident Loans in Australia.

    Cheers

    Yours in Finance

    My dad is in Australia… I am in Australia, but my corp trustee is overseas.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Your dad should seek legal advice.
    But if he is lending to a corporate trustee the National Credit Code does not apply as the borrower is not a natural person.

    My Trust / Corporate Trustees is overseas.

    In this case, does he need to send money directly to my Trustee (in which case the National Credit Code will not apply)? In other words: Dad’s account –> send international money to my trustee

    Or can he send to my Trustee via my account? Dad’s account –> my account –> send international money to my trustee

    Does it make a difference from a lending / credit / license / law’s point of view which method is used as long as it is documented clearly that my corp trustee is the ultimate receiver of the money?

    It does matter who the borrower is. If he is lending to you as agent or trustee of the trust you are an individual.

    There are also various other legal and tax consequences to doing this.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    It does matter who the borrower is. If he is lending to you as agent or trustee of the trust you are an individual.

    There are also various other legal and tax consequences to doing this.

    Nah, not like that. He is not part of my trust or member of my trustee.

    Trust is like this:
    Me as the settlor
    Me as director and shareholder of the trustee
    Me and my son are beneficiary

    My parents are not covered in any scope as far as my trust is concerned.

    My question is more in this regard:

    1. If he sends money from his account directly to Trustee account, then according to what you described, he is not sending money to a “natural person”.

    2. What about if he sends money to my account and then I transfer the money from my account into the Trustee account? In this case, is he still considered to send money to something “other than an natural individual” or is it considered as a transaction to “a natural individual” just because I happen to be the middle person?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    I think you didn’t understand my previous post as I answered these.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    I think you didn’t understand my previous post as I answered these.

    You are right. I didn’t quite understand it.

    When you said “If he is lending to you as agent or trustee of the trust you are an individual.” I read it as “If he is lending to you and he is working as an agent or trustee of the trust you are an individual.”

    Now that I think of it, it appears you actually tried to say “If he is lending to you and you are working as agent or trustee of the trust you are an individual.”

    English isn’t my first language and sometimes culture difference does make me interprate the sentence in a different way…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Who is the borrower?
    You or a company?
    If it is the company, why is the money going into your account?

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Ben
    Participant
    @benjohnson
    Join Date: 2018
    Post Count: 3

    Hi Steven,

    I think you are overcomplicating the issue. I would not worry about being caught under the NCCP as what your dad does is more like a JV where he is an unsecured lendor and he does not run a money lending business, he simply invests cash for a profit. There are a number of qualifiers to be classified to be in the business of money lending and he does not fit them, the same goes for GP.
    To be on a safe side, just pay for consultation and obtain legal advice from a professional but I would not worry about it.
    In my experience, you first find a real money making business and then worry about the details if you try to plan for every eventuality without something tangible to apply it to you will never succeed.

    Ben
    Participant
    @benjohnson
    Join Date: 2018
    Post Count: 3

    To be clear, here is an extract from Schedule 1 of the NCCP. So, if you are in the business of buying and renovating properties for profit then NCCP does not apply. If you borrow in a company or trust name the NCCP does not apply. If the people you borrow money from are not in the business of credit provision the NCCP does not apply.
    When you take a loan from the bank in the company or trust name they get you to sign a paper that states that you are taking loan to buy property for business purposes and NCCP does not apply.

    5 Provision of credit to which this Code applies
    (1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
    (a) the debtor is a natural person or a strata corporation; and
    (b) the credit is provided or intended to be provided wholly or predominantly:
    (i) for personal, domestic or household purposes; or
    (ii) to purchase, renovate or improve residential property for investment purposes; or
    (iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
    (c) a charge is or may be made for providing the credit; and
    (d) the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    Who is the borrower?
    You or a company?
    If it is the company, why is the money going into your account?

    The corp trustee is the borrower.

    Reason for considering to transfer to me first and than having me to transfer to the corp trustee is more from an ease of management point of view.

    My parents are old folks and it is a hassle for them to transfer money to overseas. For example, ANZ now days no longer does overseas transfer across the counter any more, and you must call them on their support line to do an international transfer. While ANZ has good business reasons to do it this way, it just means more hassle for old moms and dads, so its much easier for them to transfer it to me and then let me handle all of those hassle.

    Or it could be that money is not transferred directly from a personal bank account to the corp trustee, but instead is done via one of those money transfer entities such as XEMoney (who offers money transfers to overseas with more attractive rates compare to normal banks). In this case then everything is done online and again, it is a huge hassle for old moms and dads due to them being computer illiterate to do that, so it is much easier for me to handle those situations. (unless they are willing to share their banking passwords with me, but I would never ask for such as this is their private password and they are not supposed to share with me!)

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    I think you are overcomplicating the issue. I would not worry about being caught under the NCCP as what your dad does is more like a JV where he is an unsecured lendor and he does not run a money lending business, he simply invests cash for a profit. There are a number of qualifiers to be classified to be in the business of money lending and he does not fit them, the same goes for GP.

    Hi Ben

    Yes, that’s what I always thought in the past… until I read the post stating “any transfer is considered to be illegal if not having a credit license”…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Who is the borrower?
    You or a company?
    If it is the company, why is the money going into your account?

    The corp trustee is the borrower.

    Reason for considering to transfer to me first and than having me to transfer to the corp trustee is more from an ease of management point of view.

    My parents are old folks and it is a hassle for them to transfer money to overseas. For example, ANZ now days no longer does overseas transfer across the counter any more, and you must call them on their support line to do an international transfer. While ANZ has good business reasons to do it this way, it just means more hassle for old moms and dads, so its much easier for them to transfer it to me and then let me handle all of those hassle.

    Or it could be that money is not transferred directly from a personal bank account to the corp trustee, but instead is done via one of those money transfer entities such as XEMoney (who offers money transfers to overseas with more attractive rates compare to normal banks). In this case then everything is done online and again, it is a huge hassle for old moms and dads due to them being computer illiterate to do that, so it is much easier for me to handle those situations. (unless they are willing to share their banking passwords with me, but I would never ask for such as this is their private password and they are not supposed to share with me!)

    sounds like you are the borrower to me.

    Sounds like a host of legal issues too.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    To be clear, here is an extract from Schedule 1 of the NCCP. So, if you are in the business of buying and renovating properties for profit then NCCP does not apply. If you borrow in a company or trust name the NCCP does not apply.

    The Code is different to the NCCP. The Code is just a schedule of the NCCP, i.e. a part of it.

    What do you think of s29 of the NCCP?
    http://classic.austlii.edu.au/au/legis/cth/consol_act/nccpa2009377/s29.html

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 155

    sounds like you are the borrower to me.

    Sounds like a host of legal issues too.

    And why is that?

    I am not doing any buying, renovating and selling. None of those items are performed under my name. Instead the corp trustee acting on behalf of the Trust is doing all of that.

    The properties are purchased under the trustee, renovated by the trustee and eventually sold by the trustee.

    Yes, I am the settlor of the trust and yes, I am also the director / shareholder of the corp trustee… if me being the settlor and director / shareholder in the trust structure is something that immediately causes a problem, then I need to know. Because while I have talked to accountants when setting up such structure, but nobody raised any red flags for me. In fact, the people I spoke to explicitly said that the whole idea of using a business to do property investing is to separate the business from me as an individual, and I need to include people (such as secondary beneficiaries of some sort) or else legally that Trust isn’t really a separate entity to me as an individual.

    As for me. I am only there to eliminate the hassle that my parents (or whoever that is providing the lending) don’t want to deal with.

    Strange as it sounds to you, my parents frequently gets my help when it comes to using technology, such as:

    logging a call with Optus to fix their phone line
    not understanding a utility bill and gets my help to call the utility company to sort that out.
    In the past, they wanted to do internet banking but couldn’t figure their way out the interface so they call me to drive to their home or they come to my home so they can log into the internet banking account and I do the internet banking in front of them.

    I have told them to learn to use technology as the use of technology to do those stuff will only become more and more prevalent in life but so far they struggle.

    I have even had a case where my father things it is too complicated to follow a set of instructions to connect to a scanner/printer and do some scanning / printing. I even drew up the step by step instruction for him and he gave up saying “it is not something I do every day, I do it like once every 3-4 months and by then I just don’t remember, so you do it for me”

    With regards to providing cash to the Trust, at this stage they indicated that they find it too bothersome to drive to my home or having me to drive to their home just so they can open their bank account for in front of me and for me to show them how to make a transfer (or call bank and it all on the phone on their own). Hence they think it is easier to jut transfer the money to my account first and then transfer to the Trust Account.

    To me, I personally don’t mind how they do it, because either way, as far as I am concerned, it will be the Trust that gets the money and all the trading / business activities will be done by the Trust rather than myself. I have no involvement as an individual as far as the activities performed by the Trust goes.

    I guess if the act of sending money to me first really is going to cause a legal / taxing problem, then that’s OK. I will just my parents that they need to come to my home or me going to their home so the money is transferred directly from their accounts to the trust so me as the “middle node” scenario doesn’t exist.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    i can’t give you complex legal advice on a forum, and even in private I wouldn’t advise on foreign trusts and tax as it is not an area that i work in. As one example, consider the tax consequences if a settlor can benefit from a trust.

    Another example is asset protection – you being an intermediary opens a can of worms.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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