New ANZ and Commonwealth Bank business loan terms
Good news for small business borrowers as banks adopt recommended changes.
When small business ombudsman Kate Carnell took banks to task over "one sided" loan terms it was unclear what effect it would have. But now big name lenders, including Commonwealth Bank and ANZ, are introducing changes to make business loans fairer.
The focus of these changes is on non-monetary defaults, specifically financial indicator covenants. Essentially these are loan terms which add a range of other conditions, such as needing to maintain a certain loan to value ratio, which let a bank put a borrower into default even if they've met all the required repayments.
Commonwealth Bank has scrapped these from most of its small business loans, removing them entirely from business loans under $3 million. It was the first to do so and now ANZ has followed suit, removing these terms from loans under $3 million and also adopting all 11 banking industry recommendations made by the ombudsman.
In the case of Commonwealth Bank, these changes will affect 95% of its business customers and should reduce the risk of surprise default. With ANZ, this also affects the contracts of over 95% of its business loan customers. While it generally applies to all business loans under $3 million, particularly complex contracts might still involve a range of non-monetary default clauses and other terms.
What this means for you
If you're an existing business customer of ANZ or Commonwealth Bank you can expect revised contracts with fewer conditions and clearer terms. ANZ has resolved to support the offering of a one page summary of all the business loan clauses and covenants which might trigger a default, and other changes may include a choice of valuers and more differences.
If you're looking for a business loan, this is also naturally good news for you. Now that major banks are adopting the ombudsman recommendations the field of lenders may be split into the ones that follow the new recommendations, and those that don't.
So far Commonwealth business banking was the first to act on these recommendations, while ANZ business banking has made one of the strongest commitments to all recommendations. If you find yourself potentially looking at dubious terms when comparing business loans, these banks might now offer a clearer and more fair alternative.