NAB to simplify small business loan contracts
(6 October 2017 – Australia) The National Australia Bank (NAB) has announced plans to overhaul its standard contracts for small business loans, forecasting that the changes would benefit more than 130,000 Australian small businesses.
The bank says the new changes would eliminate more than a third of existing terms and contracts.
NAB’s executive general manager of small business lending, Leigh O’Neill said the new contracts would be much more transparent and user-friendly.
“It’s a complete transformation,” she said.
“What we have now is a transparent, user-friendly document that is easy to read and much shorter in length,” she said.
“Sentences are in plain English without unnecessary complexity.”
The changes follow the industry’s response to finding and recommendations from of an inquiry into small business lending by the Small Business and Family Enterprise Ombudsman, Kate Carnell, last year. It found that financial institutions place a new small business standard form contract for loans below A$5 million, which was shorter and in plain English, by December this year.
Earlier this year, NAB announced that it would not be using financial indicator covenants in most loan business loan contracts of less than A$3 million.
Further, Carnell’s report found there was “almost complete asymmetry of power in the relationship between banks and small business borrowers.”
It said small businesses suffered from “extremely complex, one-sided contracts that yield maximum power to banks to make unilateral changes whenever they like and without the agreement of borrowers”.
In response to NAB’s announcement, Carnell said that’s NAB’s move was a “positive step”.
“I applaud NAB for being first off the mark and urge other banks to follow,” Carnell said.
“It shouldn’t have taken so long, but we finally have a situation where banks will be treating small business clients as partners and share some of the risks. Currently, the contractual relationship is one-sided and unfair.”