Mortgage House CEO Ken Sayer has claimed the national credit code should be extended to cover self-employed mum and dads, who he says are at risk from the very banks who promised to support them through tough times.
Following a spike in applications for commercial loans at Mortgage House branches in recent months, Sayer said the trend which was actually good for brokers had a 'disturbing underbelly', with many businesses forced to seek finance after banks re-valued their properties.
"Distressed small business operators are coming into Mortgage House branches saying they need up to $3 million on the spot because their properties have been re-valued by banks," Sayer said.
"These are the same banks with which they have had a long-term relationship and that paradoxically promote policies that boast supporting borrowers through tough times."
Sayer said many of these operators took bank claims at face value, seeing their banks "as their best mates and assumed that their loans were safe".
"They are now being subjected to a harsh reality check," he said.
Sayer said the vast majority of Australia’s self-employed are unaware their bank can review their state of affairs "with little to no notice" and demand they come up with a capital injection "virtually overnight".
These small business operators are becoming the victims of Basel III capital adequacy requirements, Sayer claims, and the outlook is one of more short-term pain.
"Because banks need to hold more capital than they did three years ago their ability to borrow has been significantly reduced. Therefore the money available to be lent to businesses is substantially reduced."
The situation could be improved if small mum and dad businesses were covered by NCCP.
"Clearly a business like Mortgage House, a fairly large company but still classified as an SME, should not be covered by the credit code. I am talking about a panel beater who now has his own panel business and his wife and two mechanics working for him," Sayer explained.
One-man band stationary shop or green grocer operatos are likely to get wiped out in the current scenario, according to Sayer, and NCCP is designed to protect these vulnerable clients.
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