Royal Commission into financial services recommends no further regulation of lending to small and medium businesses

The final report into misconduct in the financial services sector has wide-ranging ramifications. But what does it mean for Gold Coast’s 60,000 small businesses?

The Gold Coast is home to 60,000 small and medium businesses. (Photographer Glen Anderson - We Are Gold Coast)

FEARS the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry could stifle start-ups and restrict lending to small and medium businesses appear to have been eased.

After months of startling public hearings and scathing submissions, Commissioner Kenneth Hayne’s report was released publicly this afternoon, with no recommendations to change the rules around lending to small and medium businesses.

Gold Coast Chamber of Commerce president Martin Hall cautiously welcomed the report, which he said could quell some fears that regulation could trigger a credit crunch.

Mr Hall said the Gold Coast, with its 60,000 small businesses and proliferation of start-ups, relied on companies being able to access credit in order to grow.

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Gold Coast Chamber of Commerce President Martin Hall. Picture: Richard Gosling

“It’s vitally important for businesses to maintain access to debt," he said.

“Particularly in areas such as the Gold Coast, with the amount of entrepreneurship that’s going on, referencing a business based on its performance now does not reflect what could happen in the future.

“Access to credit gives them the power to take the next step for their business.”

The commission did recommend that the Australian Banking Association redefine “small business” to apply to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million.

Mr Hall said that change made sense.

The commission highlighted the exposure of small businesses to lending risks due to their frequent ties to the personal assets of their owners and limited access to legal and financial advice.

Many small businesses will be glad there were no recommendations to change lending laws.

Despite most small business owners being personally liable for the debts of their business, small businesses are not covered by the National Consumer Credit Protection Act and are subject to standard loan contract forms which typically favour the interests of banks.

When the commission requested details of shortcomings and misconduct towards small business clients from ANZ, Bank of Queensland, Macquaries Bank, NAB and Westpac, all six disclosed some level of fraud, inaccuracy, miscalculation or otherwise unsuitable lending.

However, small business lobby groups railed against applying the consumer act to small businesses, saying it would severely restrict access to credit.

They instead pushed for strengthening of the ABA code, which only applies to the 24 lenders who are voluntary members of the association.

The ABA has reviewed its code and plans to apply it in July, including a new clause that will compel lenders to give three months’ notice of their intention not to renew loans to small businesses which are not in default.