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Banking Code still not protecting small businesses fully
Small Business Ombudsman, Kate Carnell
Wed 15 January 2020 - 7:12 amNews
Small Business and Family Enterprise Ombudsman, Kate Carnell, has spoken out on the recently approved new version of the Banking of Code of Practice – a set of enforceable standards that small businesses can expect from Australian banks.
The updates come into effect in March this year and was only last updated in July last year. Ms Carnell believes the Australian Banking Association (ABA) hasn’t gone far enough to protect small businesses.
Although the Ombudsman is approving of some of the amendments; namely the ones that aim to help drought-affected farmers, Ms Carnell has said that the same level of protection ought to be given to small businesses in these rural and remote communities that are also suffering.
The ABA claims to have implemented suggestions put forward by the Royal Commission, but it hasn’t acted on all recommendations, “including one that is critical to small business,” Ms Carnell says.
This ‘critical’ recommendation, in the Ombudsman’s opinion, was one put forward by Commissioner Hayne regarding the definition of ‘small business.’
Currently according to the Code, a ‘small business’ has to meet the following criteria at the time it obtains the banking service to be treated as such:
- it had an annual turnover of less than $10 million in the previous financial year; and
- it has fewer than 100 full-time equivalent employees; and
- it has less than $3 million total debt to all credit providers including:
i. any undrawn amounts under existing loans;
ii. any loan being applied for; and
iii. the debt of all its related entities that are businesses.
Commisioner Hayne recommended that this definition of a small business should actually 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,” Ms Carnell said.
“What that means is that a large number of small businesses, particularly those capital intensive businesses such as agriculture, building and manufacturing, are not covered by the Code.
“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.
“This is totally unacceptable and 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.
“We will continue to push for a better framework for a balanced relationship between banks and their small business customers.”
The Banking Code of Practice says on its website that it makes things easier for small businesses, by providing simplified loan contracts, providing longer notice periods and improved communication with more transparency.
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