Small business to get cheaper finance

Small businesses, women and minority groups will be able to access cheaper finance by as soon as next year.

The Australian Law Reform Commission has proposed the introduction of a more comprehensive credit reporting regime in a discussion paper released today as part of a major review of Australia’s privacy laws.

It has been the first Australian inquiry to recommend the “positive” credit reporting system be introduced.

The current system only allows credit files to include negative information such as previous defaults. Unlike the position in most countries, this makes it difficult for Australians to build up a record of responsible behaviour over time.

ALRC President, David Weisbrot, says if credit reporting agencies are able to gather a wider range of information this may encourage improved lending practices and make it easier for some people on low incomes to obtain finance.

Christine Christian, chief executive of Dun & Bradstreet, welcomed the recommendation. “It will mean cheaper finance. People will be able to get credit at more competitive rates than current consumer rates. At the moment the banks do not have enough information to access risk accurately so we could see a significant increase in the amounts they lend.”

She says that only three countries – Australia, New Zealand and France – use the negative credit reporting system. “Others, like the US, use a positive credit reporting system, which gives the banks a much better understanding of a customer’s indebtedness.”

The biggest winners will be small business, women and minority groups, she says.

However one practice that will disappear is the practice of funding a business off a fistful of credit cards.

Banks will know how many cards people have and what they owe on them.


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