sme finance

The final two Big Four banks have confirmed the removal of “non-monetary default” clauses in loan contracts for small business customers, off the back of a small business inquiry report commissioned by the Turnbull Government.

Small business ombudsman Kate Carnell, who was tasked with undertaking the inquiry, called for banks to remove to remove non-monetary default clauses for small business borrowing up to $ 5 million, but all of the banks have only included in contracts up to $ 3 million. However, this does cover a large percentage of their customers – 95% in CommBank’s case and 98% of NAB’s small business customers.

Examples of non-monetary defaults include instances such as when the value of a property falls below a pre-agreed level but the borrower continued to make repayments.

Commonwealth Bank was the first to announce the removal of financial indicator covenants in “almost all” of its small business loan contracts. The bank will remove references to them in contracts for new and existing customers, with existing customers being notified once their contracts are updated.

CommBank’s announcement was closely followed by ANZ which removed financial indicator covenants and also adopted the 11 banking industry recommendations made by the ombudsman. This contract change applies to new and existing ANZ small business customers who can expect a one-page summary of business loan clauses and covenants which might trigger a default.

NAB has also committed to “transparency and certainty” with its loans, confirming financial indicator covenants will be removed for most loan contracts for new and existing small business loan customers borrowing less than $ 3 million. The bank has also committed to “overhauling” its small business contracts by the end of the year to ensure they are written in plain English.

Speaking to the Australian Financial Review, Westpac’s chief executive of business banking David Lindberg said it would be removing “certain clauses” in SME lending contracts for customers borrowing under $ 3 million. This would affect 95% of its small business lending contracts. However, a spokesperson confirmed that the changes were only for “new contracts or varied, for example when a customer wants to change a contract”.

Want to know more about your business borrowing options? Find out your loan options at every business stage in our business borrowing guide.

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