In lending, as in just about anywhere else, there are a few questions: When? Where? How much? And how much is enough?
In Australia, those questions are getting asked of the biggest banks, commonly referred to as the “Big Four” — ANZ, NAB, Westpac and Commonwealth. In a hearing last week, representatives were front and center, being questioned before Small Business and Family Enterprise Ombudsman Kate Carnell.
As noted by SmartCompany, the hearings last week focused on communications between banks and their small business customers and loan limits.
Carnell said that, in her own experience, she had been “naïve” in dealing with the process of taking on a small business loan and the conditions that were part of that loan.
As for loan limits, Carnell questioned ANZ Deputy Chief Graham Hodges, with discussion over what constitutes a fair upper loan limit for small businesses. The bank itself said it has that limit set at $1 million. In the case that there are larger loans taken out, there are rollups of those loans into what was termed in testimony as a “wholesale credit” setting, where there are multiple levels of review and covenants tied to those loans. The $1 million limit became a point of disagreement during the questioning between Carnell and Hodges, as the former stated that the $1 million limit may indeed fall short of what is needed to keep a business (and a healthy business at that) running smoothly.
Elsewhere, the other three banks said that recent legislation dictates how contracts are drawn up at limits below the $1 million threshold. Two of those banks, Commonwealth and Westpac, have broached the idea of removing some non-monetary covenants that would dictate terms of default. Westpac said that it would suggest a range of standardized default and timeframe standards in dealing with smaller corporate customers. In addition, communication revamps may be needed, as different divisions in a bank’s lending arena may convey mixed messages to applicants as to how, when and just how much they may expect for loans. The banks also said they support holding periods in order to let applications find alternative means of finance, said The Australian.
The inquiry and hearings were part of an initiative to bring recommendations to the Australian government to help simplify lending practices to smaller firms.