Published on 28/06/2017 by Any Business

Big Four Relax Small Business Loan Clauses

The Big four banks have all relaxed a number of clauses in small business loan contracts following a report into small business lending from ombudsman Kate Cornell.

National Australia Bank, ANZ Banking Group and Westpac Banking Corp have followed Commonwealth Bank in removing "non-monetary default" clauses in loan contracts for small business customers borrowing less than $3 million.

While CBA and NAB's changes apply to both existing loan contracts and new contracts, the changes by ANZ and Westpac only apply to new contracts, or when customers seek to renew or vary an existing contract.

Ms Carnell said in her December report on small business lending – which was commissioned by the government to avert some of its own members crossing the floor to support a royal commission into the sector – that "non-monetary default" clauses are unfair because they give banks asymmetric power over SME customers.

The clauses allow banks to potentially default customers if, for example, the value of property securing their loan falls below a pre-agreed level – even if the customer has met all their repayments.

After CBA moved first to drop the clauses, NAB, the biggest business lender in the country, said on Friday it would remove "financial indicator" covenants on loans of less than $3 million for new and existing contracts, which would cover 98 per cent of its small business customers.

ANZ Banking Group also announced on Friday afternoon it would remove "financial indicator" covenants by the end of the year for small business customers with lending less than $3 million which would cover 95 per cent of customers.

Westpac said it was removing "certain clauses" in SME lending contracts for under $3 million, which would "limit" non-monetary default clauses for 95 per cent of its small business lending contracts.

Ms Carnell wants the clauses dropped for SME customers with exposures up to $5 million to capture more customers; this was also the level suggested by the independent reviewer of the banking code of conduct Phil Khoury.

According to experts, the removal of these clauses represents a significant retreat by the banks in terms of their legal powers and shows banks are being forced to respond to the pressure applied on the sector over the past year in the wake of calls for a judicial investigation into the sector.


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Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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