Monday, July 19, 2010

Small business finance scrutinised

The Senate Economics Reference Committee has found that small business finance has tightened over the past couple of years and become more expensive. However, it concluded that a return to more prudent credit conditions was appropriate. It was more concerned with what it saw as restriction on competition, particularly exit fees on business loans and the high cost of moving accounts.

It recommended that banks abolish exit fees on variable rate mortgage loans. It also recommended that the Australian Bankers Association work with small businesses to develop a code of practice for lending to small businesses. It includes a proposal to extend to small business the protection currently available to consumers.

Such a change would mean small business would have ASIC acting as a watchdog over exit fees. It would also give small businesses better access to mechanisms for negotiating with mortgage lenders when they are in financial difficulty and it would impose responsible lending obligations on small business lenders.