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Bruce Billson backs tougher rules for small-business credit contracts

Bruce Billson says there remains room for improvement to give the small-business sector better access to funding. Photo: Rob Homer Bruce Billson says there remains room for improvement to give the small-business sector better access to funding. Photo: Rob Homer
Small Business Minister Bruce Billson is pushing ahead to extend unfair contract laws to cover more of the dealings between banks and small-business customers, despite bank threats the move will push up borrowing costs.

Mr Billson said on Wednesday the nation's banks were "upset" at the government's plan to expand unfair contract protections to small business, changes that would allow courts to strike out clauses deemed to be "unfair".

The changes, introduced in draft legislation last month, could limit banks' ability to use non-financial conditions, such as loan-to-valuation ratios, to foreclose on small businesses borrowing up to $250,000.

Lenders have protested that the changes will add compliance costs, make loan applications more complex, force banks to rely more on security, and reduce more risky businesses' access to credit.

But Mr Billson told a small-business event in Sydney there was a need for change, highlighting the ability of banks to exercise debt covenants even when their customers had not missed a repayment.

Farmers have argued these conditions allow banks to unfairly foreclose on customers who have not missed their repayments.

"I'm doing unfair contract terms at the moment, which is upsetting a lot of the banking industry, but so be it," Mr Billson said at the function, organised by Westpac.

"I think there is a need to look at non-financial covenant exercising, when the borrower has not missed a payment, has not failed in any financial respect in the facility that they have," he said.

The Australian Bankers' Association opposed the unfair contract changes in March, saying there was no systemic problem and borrowing costs could rise as a result.

Westpac's small-business general manager Julie Rynski said the bank had been working closely with the government on its unfair contract changes.

 "We want to be fair, and we want to be reasonable," Ms Rynski said.

While banks have protested against the move, some borrowers argue the proposed $250,000 limit has significantly weakened the reforms, because most businesses would have larger loans than this.

The financial system inquiry chaired by former Commonwealth Bank chief David Murray supported the government's plan to expand unfair contract provisions to small business, though it said this would not prevent unfair terms in "non-standard" contracts. It did not include a $250,000 threshold.

Apart from unfair contract laws, several of the Murray inquiry's recommendations were aimed at making it easier for small businesses to access finance, including a call for more sharing of credit data and reforms to make the payments system more efficient.

Mr Billson backed Mr Murray's recommendations aimed at small business, saying they were "quite reasonable" and there remained room for improvement to give this sector of the economy better access to funding.

"The success rate of small-business finance is on paper quite impressive. What's not captured is those that say this is just too hard and decide to go somewhere else," he said.

Author: Clancy Yeates
Source: The Sydney Morning Herald

1 comment

  • Monique
    Monique Tuesday, 26 May 2015 02:46 Comment Link

    I had a tough time with the NAB, trying to come to a deal, I was send from here to there, my distrust of banks, the profits they made out of having us as a customer for nearly 20 years is at least to say a. Big kick in the teeth, not to forget their solicitors, no wonder people are slowly catching on about the extreme corruptions.
    Worked all my life hard to get and have a roof above my head, now gone, my family broken.
    They just use you as a pawn.
    At least I have survival skills, like most people that live on the land, I am sure it will bite them.
    Not to forget donating to their bush fire and flood appeals.

    Never again, false advertising.
    More give and less take


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