Government's commercial lending regs could restrict business credit

by Adam Smith16 Jan 2013


Draft legislation governing commercial loans has some worrisome elements, and could end up restricting access to business credit.
That's according to Gadens Lawyers' Jon Denovan, who told Australian Broker the proposed guidelines could hold pitfalls for brokers, borrowers and lenders.
One of the potential concerns, Denovan said, is the proposal to require a permit for commercial lending or broking. This permit would be in addition to an ACL. While Denovan said this could potentially weed out unscrupulous fringe lenders, he claimed it could have the side effect of shrinking the supply of business credit.
"There are around 10,000 brokers, and probably each one of them has occasionally done a loan for business purposes, even if it is secured by a home. They can do that at the moment," he said.
But with the additional impost of a permit, Denovan said some brokers and lenders may decide business deals aren't worth the effort.
"At the moment, they're saying you've got to get a permit to be a broker or lender on top of your ACL, and there will just be a whole lot of guys who won't bother," he said.
Perhaps more worrying, Denovan said, are the assessment requirements proposed for business lending and broking.
"The test is whether the borrower is prepared to lose their home. That's a pretty strange question to have to ask someone," he said.
The subjectivity of the question is cause for concern, he claimed.
"Because one's mind-reading ability is perhaps a bit fragmented, it can be a very difficult assessment to make. At the moment, you've got to assess whether they can afford the loan. That's an objective test. But if I've got to assess whether they're prepared to lose their home, that's a bit different."
In theory, Denovan said, the proposed regulation could lead to COSL complaints and court cases in which borrowers could argue that their preparedness to lose their home was not properly assessed.
In spite of some of the concerns, Denovan said the draft legislation was not cause for panic.
"It's going to be refined. It's early days yet," he said.
But he urged brokers to remain vigilant in following the development of the proposed legislation.
"It's important for brokers to watch this space."


  • by Keith of the west 16/01/2013 11:16:10 AM

    I think it time the Goverment clean up its own back yard before they destroy ours.

    Just reading this brief indicates further the involvement of goverment regulation and intervention gone mad!

  • by Dean 16/01/2013 11:31:40 AM

    Surely they cannot be serious in asking us ,the broker, to do a test to determine if the borrower is prepared to lose their home if the business goes wrong. If that stays in the legislation I can see every broker and lender demanding a commercial borrower seek professional legal advice.

  • by Wes 16/01/2013 11:31:58 AM

    Hopefully this Govt wont see out the year and this legislation will be assigned to the dust bin where it belongs!