Government sneaks in draft legislation to regulate small businesses access to credit

With attention focused on the abandoned budget surplus, the Federal Government has published draft legislation which proposes regulating small business credit in a move critics say will make it harder for small business to get funding.

At the moment, small business credit is not regulated. However, draft legislation from Financial Services Minister Bill Shorten’s office proposes prohibiting people from “engaging in credit activities” in relation to a small business credit contract or a small business consumer lease unless they hold a permit.

A spokesperson for Shorten told SmartCompany the reforms proposed include prohibiting people from “engaging in credit activities” in relation to an investment credit contract unless they hold an Australian credit licence.

“Responsible lending obligations do not apply to small business credit contracts or to investment credit contracts generally, but only to specific classes of these contracts,” the spokesperson says.

“The substantive obligations in the National Credit Code do not apply to small business credit contracts and to small business consumer leases. Other than the unjust contract provisions, these provisions also do not apply to investment credit contracts.”

The draft legislation also proposes expanding the definition of regulated credit contracts to include contracts where the credit provider or lessor is a private individual who is not in the business of providing credit or consumer leases, but where the contract is arranged by an intermediary.

Short-term leases and indefinite term leases that are currently exempt from regulation will also be regulated.

The spokesperson declined to comment on whether the proposed legislation will make it tougher for small businesses to obtain credit.

However, Opposition small business spokesperson Bruce Billson told SmartCompany the draft legislation was less than transparent and it seemed to be “a solution looking for a problem”.

“We’ve not seen any evidence that there is a problem to be solved and this seems to be another part of a regulatory binge that is being imposed because government thinks it can. Even in feedback from stakeholder consultations leading up to this draft, there was a comprehensive inability of Treasury officials to point to evidence of a problem requiring this degree of intervention,” he says.

Billson warns if implemented the draft legislation would have a negative impact on small businesses.

“This will just make it more challenging for small business to access the finance they need, particularly at a start-up phase,” he says.

“Finance is the oxygen of many small businesses. It is like needing a permit for small business to breathe.”

Billson says introducing the draft legislation yesterday means many people will not be aware of it.

“The timing of it is particularly disappointing off the back of other broken promises on the budget surplus that is occupying people’s minds, this material is released – what is not in the material is why there is a need to go down this pathway,” he says.

CPA Australia is also opposed to the legislation and believes regulating small business credit will negatively impact the availability and cost of credit as accountants and others will no longer assist small business apply for credit and comply with the requirements of an existing loan.

“Further, and most importantly, Treasury have never been able to provide any evidence that that there is a problem in small business credit that requires a regulatory response,” says Gavan Ord, business policy adviser at CPA Australia.

Peter Strong, executive director of the Council of Small Business Australia, told SmartCompany COSBOA has expressed concerns to Minister Shorten’s offices the process is not needed and will only make access to finance more difficult.

Strong is optimistic the draft legislation can be amended but concedes the timing of the process makes this difficult.

“There seems to be some understanding this was developed around the global financial crisis and it is a step too far and we are saying we can’t pass this legislation; it will be detrimental to the Australian economy,” he says.

“You can’t give people short notice to make responses to such important legislation, while a month and a half is given to respond, that month and a half is holiday for a lot of people so we wish we had been given it earlier.”


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