Banking Royal Commission turns to small business loans

There are fears tighter lending standards and any new regulations out of the banking royal commission could make it even harder for small businesses to get loans.

The Royal Commission is expected to hear about small-business owners who have been wronged by banks during a two-week public hearing beginning today.

But small business advocates warn against further regulations, saying lenders are already becoming more risk adverse in the commercial space.

Council of Small Business Australia (COSBOA) CEO Peter Strong said many owners wanting to grow their small business find it hard to get finance, often having to use their homes as security for the loan.

“What we need to do is make sure that at the end of this royal commission they don’t make it harder for banks to give money out by making a new set of rules,” he told AAP.

The royal commission is expected to lead to tighter lending standards for mortgages and other consumer loans and Mr Strong says the fear is that will extend to the small and medium enterprises that already face difficulties accessing credit.

He and other small business advocates argue against consumer regulations being extended to commercial lending because of fundamental differences such as in loan products, purposes, terms and pricing.

“We’re very concerned that if we had the same rules as a consumer we won’t get a loan,” Mr Strong said.

“Businesses that want to grow but are considered high risk in theory won’t get any money at all.”

Commercial and Asset Finance Brokers Association president David Gandolfo said lenders were becoming more risk adverse and pointed to concerns about what he dubbed “the regulatory black cloud”.

“There’s this perception that consumer regulation is going to come into the commercial space,” the Quantum Business Finance director said.

“We’re already in a situation where credit is harder to obtain. We don’t need any more regulatory oversight that’s going to make it even harder still.”

In a document prepared for the royal commission, Treasury noted the cost of finance is a significant issue and obtaining credit can also be an issue for certain types of small businesses.

Treasury noted small businesses now benefit from fairness of contract terms and general legal protections around misleading, deceptive and unconscionable conduct.

But more specific protections around responsible lending obligations, disclosure requirements and dispute resolution do not apply, although there have been recent reforms.

While the major banks have made changes to small business loan contracts, Small Business and Family Enterprise Ombudsman Kate Carnell has said there is still more work to be done.

Ms Carnell has highlighted cases where small businesses have found themselves in default, even though they have not missed loan payments.

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