The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has raised concerns with proposed changes to the Banking Code of Practice set to go into effect in March 2020, suggesting some changes are unfair to small business owners, leaving them unprotected.
“The ABA claims it has implemented the Royal Commission recommendations but it has not acted on all of the recommendations including one that is critical to small business,” Ms Carnell says.
“Commissioner Hayne recommended that the definition of a small business should be businesses that apply for a loan up to $5 million and have fewer than 100 employees*.
“Despite our repeated efforts, the Code only protects small businesses with up to $3 million in total debt to all credit providers.
Carnell says this means many smal businesses, particularly those in capital intensive businesses such as agriculture, building and manufacturing, are not covered by the Code.
“While we support approved amendments to the Code to help drought-affected farmers, that same level of protection ought to be given to small businesses in these rural and remote communities that are also suffering.
“Of particular concern, is a new addition to the Code under paragraph 115 b)** which in effect, allows banks to take action against the small business guarantor, before enforcing recovery against the security provided by the small business borrower.
Carnell describes this clause as “totally unacceptable”
“It has the potential to be seriously detrimental to the small business borrower.
“During the Royal Commission, Commissioner Hayne acknowledged the ABA Banking Code of Practice is the chief protection for small business borrowers and as such, it needs real and meaningful changes to give it teeth.
“While the Code has been improved, the number of get-out-of-jail clauses for the banks still dilute the protections for small businesses.
“We will continue to push for a better framework for a balanced relationship between banks and their small business customers,” Carnell concluded.