06 October 2017
NAB lead on simpler small business contracts welcomed
The Australian Small Business and Family Enterprise Ombudsman has welcomed the introduction of shorter, plain English loan contracts by National Australia Bank for small business borrowers.
The bank announced yesterday that more than 130,000 Australian business owners would benefit from a complete overhaul of its existing business standard loan form contract.
Ombudsman Kate Carnell said this was a positive step.
“My small business loans inquiry recommended this in December last year and called for implementation by July 2017,” Ms Carnell said.
“It followed unfair contract terms legislation coming into force last November.
“The inquiry report recommended that where a small business had met loan payments and acted lawfully, the bank must not default a loan for any reason.
“The report also said conditions must be removed where banks could unilaterally value existing security assets during the life of a loan; and not invoke financial covenants or catch-all ‘material adverse change’ clauses.
“I applaud NAB for being first off the mark and urge other banks to follow.
“It shouldn’t have taken so long, but we finally have a situation where banks will be treating small business clients as partners and share some of the risk. Currently the contractual relationship is one-sided and unfair.”
The NAB statement says: “The changes come after NAB announced financial indicator covenants will no longer be used in most loan contracts for new and existing small business customers with total business lending of less than $3 million in April 2017.”
However, Ms Carnell said it would be disappointing if changes such as these were not applied by all lenders to loans above $3 million.
“The banks’ own independent expert adviser on the ABA Code of Banking Practice review, the Financial Ombudsman Service and the Government’s response to the Ramsay review on external dispute resolution have all identified a credit facility of at least $5 million is an appropriate threshold,” she said.
“I’ll continue talking to the government, opposition, crossbench MPs and the banks about raising the threshold to $5 million.”