Photo by Christopher Burns on Unsplash

On February 4, the final report on lending to small business released by the Australia’s Banking Royal Commission did not have material changes. No extension was granted on the laws governing consumer credit to SMEs. The report did include a recommendation to expand the definition of small business.

Commissioner Kenneth Hayne prefers a status quo rather than altering the lending rules for small and medium enterprises. He was forthright when he said that the responsible lending provisions of the National Consumer Credit Protection Act do not apply to lending for business purposes.

Also, he isn’t amenable on new regulations that would only tighten credit for SMEs. The RBA report last September stated that 20% of small businesses are finding it difficult to gain access to financing.

Further, Hayne wants any expansion in the 2019 Banking Code definition of small business to cover businesses with turnover of up to $5 million and up to 100 full-time employees. Currently, small businesses are defined in three ways including those with $2 million turnover volume and up to 20 employees.

The commission tackled the issues of banks’ demeanor when lending to SMEs and loan guarantees. They see it proper for banks to remain diligent and prudent when making credit decisions.

The issue of loan guarantees stemmed from Westpac’s attempt to enforce a guarantee and possess the house of disability pensioner Carolyn Flanagan. They didn’t amend the existing law with regard to guarantees. Lenders are under no obligation to renew a loan or set conditions thereto.

Small businesses are not awarded compensation when they fall prey to a bank’s wrongdoing. But the introduction of the last resort compensation scheme could be the relief.

In totality, the government accepted the banking royal commission’s recommendations.