Business-purpose loan
A business-purpose loan is credit extended primarily for a business, commercial or agricultural purpose, such as an investor’s fix-and-flip or rental loan. Federal consumer rules such as TILA and RESPA generally exempt it.
How business-purpose lending works
Regulation Z, which implements the Truth in Lending Act, exempts “an extension of credit primarily for a business, commercial or agricultural purpose” and credit to anyone other than a natural person (12 CFR 1026.3(a)). Regulation X, which implements RESPA, has a similar exemption for business-purpose loans. Most private real estate lending relies on these exemptions: loans to investors to buy, renovate, build or hold non-owner-occupied property.
The test is the purpose of the credit, not only the borrower. A loan to an LLC is outside Regulation Z by definition, but a loan to an individual is business-purpose only if its primary purpose is business. Lenders usually document purpose with a signed business-purpose and non-owner-occupancy certificate, a loan to an entity, and a file showing the property is an investment.
State law adds its own rules: licensing, usury and foreclosure requirements differ by state and can apply to business-purpose loans too. This is a general overview, not legal advice; consult counsel on your loans.
Why it matters to a private lender
Capital partners and loan buyers that fund private loans almost always require business-purpose loans. A loan later found to be consumer credit can carry disclosure, ability-to-repay and fee problems that make it hard to sell or enforce. Clean purpose documentation is one of the first things a capital partner checks in a file.
Compare the two categories in business-purpose vs consumer loans.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.