Covenant light loan contracts?
Ombudsman Slams ABA response to small business loans inquiry
https://www.finder.com.au/ombudsman-slams-abas-business-loans-inquiry-response
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has not held back in expressing her disappointment with the Australian Bankers Association's (ABA) response to the small business inquiry report, of which Carnell's office was tasked with conducting.
The ombudsman called the ABA's response "feeble" and said that the Commonwealth Bank's response to
the report, which saw the bank become the first of the Big Four to announce the removal of non-
monetary default clauses in its small business loan contracts on Friday, was much better.
Carnell's main qualm is with the ABA's decision to not accept the ASBFEO's definition of a small business loan as being any loan under $5 million, sticking instead to a $3 million limit. Carnell says that the limit is "unworkable".
"The ABA is saying that any business that has aggregate loans above $3 million, including loans with all financial institutions and including all associated entities, will not be treated as a small business," she said.
"This would mean that all loans taken out by directors of the business and their partners would be aggregated to determine if a loan taken out by the small business would be able to access the removal of non-financial default clauses and the other recommendations of the ASBFEO report.”
Carnell has said that this would exclude a large number of small businesses and make "nonsense" of the ABA's claim that its response will cover 95% of businesses.
“I will be asking the ABA how they came up with this figure,” Carnell said.
As part of its response, the ABA referred to "covenant light" loan contracts, which appear at odds with
the announcements made by the Big Four on Friday and today about the removal of non-monetary
default clauses in nearly all of their small business loan contracts.
However, these announcements were in line with the ABA's definition of a "small business loan", with each of them only applying to small business contracts with amounts less than $3 million.
The one part of the ABA's response welcomed by the ombudsman was its aim to work with ASIC to implement a new Code of Banking Practice in line with the Khoury Report.
“We welcome the ABA’s undertaking that it will work on a new Code of Banking Practice this year with the aim of publishing it by the end of the year. We will closely monitor its progress,” Carnell said.