Proposed loan contract reforms advice opportunity
Financial planners have an opportunity to extend their businesses into the area of finance contract advice if the Australian Government acts on recommendations of a recent inquiry into small business loans.
Atle Crowe-Maxwell, the director of Omniwealth Business Advisory, says planners can help their business clients take advantage of the changes, if they proceed.
The key finding of the Australian Small Business and Family Enterprise Ombudsman’s review of small business finance arrangements was that there was “almost complete asymmetry of power in the relationship between banks and small business borrowers.”
The Ombudsman’s report, which was released in February, says: “This manifests itself in extremely complex, one-sided contracts that yield maximum power to banks to make unilateral changes whenever they like and without the agreement of the borrowers.”
The Ombudsman’s recommendations, which the Government is considering, include a requirement that for loans below $5 million, banks must put in place a new small business standard form contract that is short and written in plain English.
Among the other recommendations:
- banks must provide a one-page summary of the clauses and covenants that may trigger defaults or other detrimental outcomes for borrowers;
- banks must provide borrowers with decisions on rollover at least 90 business days before loans mature, so borrowers can organise alternative finance;
- and banks must provide a minimum of 30 business days notice for all changes to general restriction clauses and covenants, to give borrowers more time to respond and react to a potential breach of conditions.
Crowe-Maxwell says: The report should provide small business owners with a fairer, more equal relationship with their banks, if the changes are accepted. The mooted changes would give clearer timeframes on changing the terms and conditions of a banking arrangement.
“Business borrowers will only benefit if they obtain proper advice to help them take advantage of the proposed changes.”
Crowe-Maxwell says there are a number of ways business advisers can work with small business clients on their finance arrangements, such as helping prepare and maintain covenant reports and strategic plans, assist with budgets and forecasts and arrange regular meetings with lenders.
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