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#995161 - 07/15/08 12:43 PM Business or Consumer Purpose?
YHWB Offline
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Joined: Apr 2005
Posts: 638
Out there
We have a loan request from an individual. The loan proceeds will be used to invest in a new real estate private equity fund. He is going to be the general partner and manager of the new fund.

Business or consumer purpose?

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Lending Compliance
#995246 - 07/15/08 02:01 PM Re: Business or Consumer Purpose? YHWB
Tesla Offline
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Joined: Nov 2003
Posts: 3,728
1. Primary purposes. A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt.

In determining whether credit to finance an acquisition—such as securities, antiques, or art—is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:

• The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.

• The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.

• The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.

• The size of the transaction. The larger the transaction, the more likely it is to be business purpose.

• The borrower's statement of purpose for the loan.

Examples of business-purpose credit include:

• A loan to expand a business, even if it is secured by the borrower's residence or personal property.

• A loan to improve a principal residence by putting in a business office.

• A business account used occasionally for consumer purposes.

Examples of consumer-purpose credit include:

• Credit extensions by a company to its employees or agents if the loans are used for personal purposes.

• A loan secured by a mechanic's tools to pay a child's tuition.

• A personal account used occasionally for business purposes

Part of the commentary to 226.3

Hope that helps!
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It's not that I take life for granted. It's only that the good won't make it. Innocence dies, while Villany Thrives.

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#995306 - 07/15/08 02:36 PM Re: Business or Consumer Purpose? Tesla
YHWB Offline
Platinum Poster
Joined: Apr 2005
Posts: 638
Out there
Thank you.

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