NAB acts on simplifying small business contracts

NAB says it will simplify its contracts with small business, axing more than a third of existing terms and conditions.

A man walks past a branch of the National Australia Bank in Sydney. (AFP PHOTO/Peter Parks)

The National Australia Bank is to simplify contracts for small business borrowers, cutting out more than a third of existing terms and contracts.

The bank today announced plans to overhaul its standard contracts for small business loans, estimating that the changes would benefit more than 130,000 small business owners in Australia.

NAB’s executive general manager of small business lending, Ms Leigh O’Neill said the new contracts would be much more transparent and user friendly.

“It’s a complete transformation,” she said.

“What we have now is a transparent, user friendly document that is easy to read and much shorter in length,” she said.

“Sentences are in plain English without unnecessary complexity.”

The changes come as a result of the banking industry’s response to the recommendations of an inquiry into small business lending by the Small Business and Family Enterprise Ombudsman, Kate Carnell, last year.

The inquiry recommended that banks put in place a new small business standard form contract for loans below $5 million, which was shorter and in plain English, by December this year.

NAB’s chief legal counsel, Sharon Cook, said today that the bank was working with the wider banking industry, the Australian Securities and Investments Commission (ASIC) and customers to address the concerns raised in the report.

“The importance of a simple and fair contract cannot be underestimated,” she said.

The changes come after NAB announced in April that it would not be using financial indicator covenants in most loan contracts for customers with total business lending of less than $3m.

The Carnell report into the law and practices surrounding small business lending found that there was an “almost complete asymmetry of power in the relationship between banks and small business borrowers.”

It said small businesses suffered from “extremely complex, one sided contracts that yield maximum power to banks to make unilateral changes whenever they like and without the agreement of borrowers”.

It also complained that there were “inadequate time frames around key loan milestones” in loan agreements that left borrowers vulnerable.

Completed in December last year, the report complained that the banking industry had “taken little action” to address the concerns of small business borrowers which had been raised in 17 inquiries and reviews into small business lending practices since the global financial crisis.

The report reviewed a selection of cases presented to the Parliamentary Joint Inquiry into the Impairment of Customer Loans.

In a third of the cases reviewed, it found there were “very real issues where bank conduct” was unacceptable and “possibly unconscionable.”

It also recommended that ASIC set up a small business commissioner.