It seems the controversial draft legislation regulating small business finance has been deferred – with the Government now saying it wants to take the time to get reforms right. This follows a barrage of criticisms from business groups that the new laws would make it much harder for small businesses to get funding.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.

The Government’s Christmas ‘surprise’ for small businesses in the form of draft legislation to regulate commercial lending certainly met some criticism in the lending and small business sector.

The legislation proposed prohibiting people from “engaging in credit activities” in relation to a small business credit contract or a small business consumer lease unless they hold a permit.

Business publication SmartCompany confirmed last week in the story ‘Government backflips on plans to regulate access to credit for small business‘ that Treasury will put off any action on small business finance.  T

hey said Financial Services Minister Bill Shorten announced the withdrawal of the draft legislation at a meeting with the Council of Small Business of Australia and the Commercial Asset Finance Brokers Association of Australia last week.

It was also reported in Australian Broker today in the story ‘Commercial lending off the table…for now’ that Treasury indicated that its consultations had found “a need to further examine a number of key issues” relating to business credit.

“Treasury’s release said that the Government considers that it is important to get the reforms right, given the important role that small businesses play in the Australian economy,” Gadens Lawyers partner Jon Denovan told AB.

The CAFBA said in a statement that the government’s move to dump the draft legislation was a common sense result.

 “CAFBA maintained staunch resistance to all aspects of the draft regulation and was unwilling to accept or compromise its position, as CAFBA fully understood the debilitating impact of the proposed regulation and the flow-on effects to every small business in Australia,” it was reported in SmartCompany.

This was our position on the draft legislation when it was released just days before Christmas:

CEO of MyCRA Credit Rating Repair, Graham Doessel says the proposed changes would be widely criticised by small business advocates as stifling the flow of business credit in Australia and that the changes are 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,” Mr Doessel says.

Where we did want to see change, was in the basic rights afford to commercial credit file holders before recovery is commenced.

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.

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.

Here’s more from our media statement:

“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.

“A commercial credit file holder is still subject to 5 years of bad credit if they end up with a default listing, the ramifications are still the same – they are generally refused mainstream credit, refused mobile phone plans, car finance and credit cards – but the rules for how the default gets there in the first place are just not there,” Mr Doessel says.

“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.”

Mr 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,” he says.

We’re glad the Government has put this legislation on the backburner, but still hope at some stage commercial credit reporting will be reassessed.

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