The Australian Small Business and Family Enterprise Ombudsman Kate Carnell cautioned banks and financial institutions that even a year on from the royal commission, they still have a long way to go if they are serious about repairing their relationship with small businesses.
“Even a year on from the banking royal commission, banks and other large financial institutions are more focused on passing on their punishment to small businesses,” said Ms Carnell.
“For instance, many small businesses in the financial planning industry have faced financial ruin in the aftermath of the banking royal commission, with hundreds of planners bearing the brunt of brutal restructures and fire sales by banks and wealth funds.”
She revealed that many of these small business owners are facing the prospect of losing their homes, families and livelihoods as these financial institutions and banks “bulldoze their way through their exit strategies”.
Equally, Ms Carnell noted, the new-look Banking Code of Practice in effect from March this year fails to sufficiently protect small business borrowers.
“The ABA claims it has implemented the royal commission recommendations but it has not acted on all of the recommendations, including one that is critical to small business,” she said.
“Commissioner Hayne recommended that the definition of a small business should be businesses that apply for a loan up to $5 million and have fewer than 100 employees.”
Despite repeated efforts by several groups, including the ASBFEO, the code still only protects small businesses with up to $3 million in total debt to all credit providers.
“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,” warned Ms Carnell.
Of particular concern, she added, 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 and their ability to secure guarantors,” she said.
Ms Carnell acknowledged that while the code has been improved, the number of get-out-of-jail clauses for the banks still dilute the protections for small businesses.
“We will continue to push for a better framework for a balanced relationship between banks and their small business customers,” she said.
