The federal government has published draft legislation which proposes regulating small business credit - but an advocate for accurate credit reporting has criticised the move, saying what is needed is not less credit, but simply a better credit reporting structure.
Draft legislation put out by 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 an Australian credit licence, according to small business publication SmartCompany.
A spokesperson for Shorten’s office says responsible lending obligations don’t currently apply to small business credit contracts or to investment credit contracts generally - only to specific classes of these contracts.
“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 spokesperson declined to comment on whether the proposed legislation will make it tougher for small businesses to obtain credit.
CEO of MyCRA Credit Rating Repair, Graham Doessel, says the proposed changes will likely be criticised by small business advocates as stifling the flow of business credit in Australia - and that the changes are an unnecessary form of “hand holding” for Australian business owners.
“Australian small businesses are already doing it tough getting credit out there post GFC – this is going to mean they will struggle even further to expand and there will be less start-ups.”
However, he says any changes to credit reporting for small businesses would be welcomed.
“There is a gaping hole in the basic rights afforded to commercial credit file holders before recovery is commenced, and this needs to be dealt with.”
In the consumer landscape, if an account is overdue, then the account holder is afforded a 30 day right to remedy under the Credit Reporting Code of Conduct. This is meant to ensure that fair and reasonable means have been taken to attempt to recover the outstanding amount before further action is taken, and before the consumer’s credit file is defaulted.
As commercial credit is not covered under the Code, this right is currently not provided to commercial credit file holders – and Doessel says many times small business owners have been caught out.
“The common courtesies which consumers are afforded and which many assume stay with them in the commercial sphere just don’t apply – many don’t realise just how big a risk commercial credit is. It’s like the ‘wild, wild west’ out there with some lenders defaulting small businesses with little to no warning.”
Once a default is placed on a commercial credit file, then the length of time it remains on the credit file is legislated by the Privacy Act 1988.
“In theory, you can be one or two days late in paying a commercial account and you can have your ability to obtain credit ruined. There is no right of redress, as there is no legislation governing notification requirements in the commercial credit sphere.”
Doessel says the Government has completely missed the mark on what small businesses need to thrive and survive.
“Most don’t need restrictions on available credit, they just need the basic credit reporting rights that they deserve.”