SMB Lending In Australia After Lending Standards Are Waived

Australia is making small business lending easier by waiving responsible lending standards for small firms.

Treasurer Josh Frydenberg announced last week that he would instruct the Australian Securities and Investments Commission (ASIC) to order banks to waive the standards for SMBs. He explained that small businesses have had to tighten consumer lending since the Hayne royal commission, when banks were scrutinized for their lending practices to small businesses because many consumers were using their homes as security.

“There’s a real gray area as to what is a small business loan and a personal loan,” he said.

Small business ombudsman Kate Carnell said she hoped ASIC would take the treasurer’s direction seriously.

“We have been saying this for a long time now that since the royal commission the banks have been using consumer responsible lending criteria for small business, it is not appropriate or relevant,” she said. “There is no point asking small businesses for fortnightly payslips or what they spend on takeaway and Netflix.”

And Joseph Healy, co-founder and chief executive of small business challenger bank Judo, said Frydenberg’s announcement was “a common-sense statement.”

“I think it clarifies something. I think it makes it a lot easier and less onerous,” said Healy, adding that banks have been looking at expenses line by line during the application process.

“People said the banks were getting down to how much they were spending on Uber, Netflix and takeaway,” he said. “Frankly, that level of detail is irrelevant. It will mean that we will be faster in our decision making and we will not get as tied up as delving into a level of detail that was not relevant or core to the lending decision. From a borrower point of view, it is a significant development.”

Earlier this year, the Royal Commission released a report explaining that tighter regulation was not the right move in response to the country’s SMB lending misconduct.

“The price paid by our community has been immense and goes beyond just the financial,” Frydenberg said in February. “Businesses have been broken, and the emotional stress and personal pain have broken lives.”