The Federal Government has announced a proposal of overhauling the current lending laws as a way to better address the funding needs and issues facing small businesses.
According to Treasurer Josh Frydenberg, under the proposal, lending laws will be changed to lift what are considered “onerous barriers” to small businesses applying for loans.
Despite the changes, banks will still be accountable to ASIC while the Federal Government has pledged greater protections for those considered “vulnerable” borrowers. ASIC will also have the power to impose penalties for prohibited or excessive fees and interest charges.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the proposal, saying, “Access to finance is critical to small business survival, particularly as support measures are tapered over the coming months. 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.
“Since the Banking Royal Commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks” Carnell added. “The pendulum has swung too far and now is the time to correct this imbalance which is harmful to small businesses.”
The Ombudsman pointed out that many small businesses struggle to secure finance in the good times. Things are even harder due to the pandemic. A recent Sensis report revealed that of decreasing number of small businesses that applied for a loan in the three months to August, about one in four had been rejected. Carnell believes that cumbersome small-business loan application and bank assessment process played a large role in the high number of loan rejections.
“We are aware of small businesses that 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, which really means the family home,” Carnell said. “It’s no wonder small-business owners are reluctant to borrow.
“Small business borrowers should always ensure their lender is an AFCA member and to go their trusted accredited financial adviser before taking out a loan,” Carnell concluded.