CBA contract changes to benefit 95% of small business customers

Elizabeth Barry 28 April 2017 NEWS

sme business owner

The changes come following months of criticism over unfair contract terms from the small business ombudsman.

Commonwealth Bank has announced that it will no longer include financial indicator covenants in "almost all" of its small business loan contracts, therefore removing them as a possible cause of default. The announcement comes following months of criticism of contract terms from small business ombudsman Kate Carnell, which she says are "one-sided and unfair".

CommBank says this change will address one of the key concerns Carnell raised in the Small Business Loans Inquiry report.

"Even though we very rarely used these covenants as a reason to foreclose a loan, this means that we will be removing all references to them in our small business loan contracts where our exposure to the customer is below a value of $3 million. We are doing this for all new and existing qualifying customers to provide greater transparency and certainty for small business," said CommBank Business and Private Banking group executive Adam Bennett.

According to the bank, the change will benefit 95% of customers.

Financial covenants that will be removed include loan-to-value ratios and interest cover ratios. Specific events of non-monetary default that "entitle enforcement will be limited to certain circumstances within the customer's control". For example, this will include insolvency, bankruptcy or loss of licence to permit or conduct business.

The Australian Financial Review reported that Carnell has welcomed the changes but maintained that the covenants should be removed for loans up to $5 million.

Existing customers will be advised of the removal of covenants in their loan contracts and future contracts will be simplified. The bank is also reportedly implementing changes in response to the ombudsman's other recommendations.

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