What your small business needs to know about the new banking code
Including which banks have agreed to it.
A rewrite of the banking code, a document which outlines the standards which a number of Australian banks agree to adhere to, has been accepted by the Australian Investments and Securities Commission (ASIC). The rewrite of the code was undertaken during 2016-17 and is due to come into effect on 1 July 2019.
While there is a raft of measures for consumers, for the first time small businesses were given special attention with their own dedicated section in the document. This comes not long after fintech business lenders made a similar move to improve transparency in the alternative lending space in February by developing their own code of conduct.
The new banking code defines a small business as one that has a turnover of less than $10 million the previous financial year, fewer than 100 full-time or equivalent employees and has less than $3 million total debt. The standards were then split into five key areas: applying for a loan, enforcement, non-monetary defaults, loan rejection, and appointing external property valuers, accountants or insolvency practitioners.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell said that while she welcomed the changes, she was disappointed about the restrictive definition of a small business.
“The new Code is in line with our Small Business Loans Inquiry, where we recommended the Code be revised, that it be approved by ASIC and include a dedicated section on small business written in plain language," she said.
“We are disappointed the cap for small business loans is still set at a total loan facility of $3 million, as we had recommended a credit facility of at least $5 million which would encompass capital intensive small businesses such as farms, building and manufacturing."
You can see a summary of the standards applying to small businesses below as well as the banks that have agreed to the current code.
Banking code of practice: Summary for small businesses
Applying for a loan
- The bank will tell you what you need to apply and how long until you find out if you've been approved.
- You will receive a terms and conditions document in plain English.
- If you are rejected for a loan the bank will tell you a general reason why, if appropriate.
Enforcing a loan
- You'll receive 30 days notice if you are in default on your loan before enforcement begins.
- If you remedy the default during the 30-day period, the bank won't require full repayment or take enforcement proceedings.
- The 30-day period may be shorter or may not apply in a few cases, such as if you have acted unlawfully or are insolvent.
- The bank may not be required to give you any notice if you have an overdraft or on-demand credit facility.
- The bank's loan terms and conditions will specify how and when they won't enforce a loan for non-monetary defaults.
- There are a number of cases where the bank may default a loan, such as if you use it for a purpose not approved by them or you don't maintain a licence necessary to conduct your business.
- The bank will allow a reasonable time for you to remedy a non-monetary default unless it needs to mitigate an immediate risk.
Loan extension rejection
- You will be given a minimum of three months notice if the bank decides not to extend your loan, and you are not in default and your loan principal isn't due to be fully repaid at the end of its scheduled term.
- The bank doesn't need to extend or refinance your loan on the same terms as it has previously been financed.
The appointment of property valuers, investigative accountants and insolvency practitioners
- The bank will be fair and transparent when appointing property valuers, accountants and insolvency practitioners.
- You will receive copies of property valuations.
- Only appropriately qualified valuers, accountants and insolvency practitioners will be appointed.
You can see a full copy of the banking code of practice on the Australian Banking Association's website.