Recognising that the current lending laws are outdated, especially given the current crisis, the government has proposed an overhaul with the expectation that this would offer a necessary funding injection to the small-business sector.
Under the plan announced on Friday by Treasurer Josh Frydenberg, lending laws will be changed to lift onerous barriers to small businesses applying for loans.
According to the Treasurer, the government will simplify the system by moving away from a “one-size-fits-all” approach while at the same time strengthening consumer protections for those that need it.
Key elements of the reforms include removing responsible lending obligations from the National Consumer Credit Protection Act 2009, with the exception of small amount credit contracts, as well as allowing lenders to rely on the information provided by borrowers to address the excessive risk aversion which has progressively entered the system.
Under the reform, the government will also ensure that authorised deposit-taking institutions (ADIs) continue to comply with APRA’s lending standards, and it will move to extend key elements of APRA’s ADI lending standards to non-ADIs.
The removal of the ambiguity regarding the application of consumer lending laws to small-business lending is another important element of the Treasurer’s proposal.
“These changes will make it easier for the majority of Australians and small businesses to access credit, reduce red tape, improve competition, and ensure that the strongest consumer protections are targeted at the most vulnerable Australians,” Treasurer Josh Frydenberg said.
Applauding the government’s move, the small business ombudsman reiterated the importance of access to finance to small-business survival.
“The reforms outlined today would give small businesses the confidence they need to seek funding to get through this crisis so they can grow and employ,” said Australian Small Business and Family Enterprise Ombudsman Kate Carnell.
“Since the banking royal commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks.
“The pendulum has swung too far and now is the time to correct this imbalance which is harmful to small businesses.”
She revealed a number of small businesses have been asked for all sorts of documentation by the banks — even for loans that have been 50 per cent guaranteed by the federal government — including director guarantees.
“It’s no wonder small-business owners are reluctant to borrow,” she said.
“Importantly, the banks will still be accountable to ASIC, and the government has pledged greater protections for vulnerable borrowers.
“Small-business borrowers should always ensure their lender is an AFCA member and to go to their trusted accredited financial adviser before taking out a loan.”
Further information on the measures can be found here.