Major bank makes moves on small business loans

NAB has announced it would provide a “complete overhaul” of its existing business standard loan form contract with simpler contractual clauses, plain English, and a major reduction in document length, with one-third of existing terms and conditions discarded.

NAB executive general manager business direct and small business Leigh O’Neill said the simpler contracts would benefit over 130,000 business owners.

“It’s a complete transformation – what we have now is a transparent, user friendly document that is easy to read and much shorter in length. Sentences are in plain English, without unnecessary complexity,” Ms O’Neill said.

“We consulted widely with industry and customers. Essentially, if the language didn’t make sense to them, we worked through a better solution together.”

The changes follow the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) small business loans inquiry last December which recommended “that conditions must be removed where banks could unilaterally value existing security assets during the life of a loan; and not invoke financial covenants or catch-all ‘material adverse change’ clauses”.

Ombudsman Kate Carnell said the move to simpler contracts was a positive step.

“I applaud NAB for being first off the mark and urge other banks to follow,” said Ms Carnell.

“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 risk. Currently the contractual relationship is one-sided and unfair.”

Minister for Small Business Michael McCormack also welcomed the move, while urging other lenders to follow suit.

“I am pleased that NAB has taken this step to ensure that small businesses looking to invest in their business can now do it in a more straightforward way through loan contracts that are easier to understand,” said Mr McCormack.

“Small business is the engine room of our economy and we are working hard to create the right policy settings to ensure that they can continue to thrive, and simplifying small business lending is a great outcome to achieve this.

“Small businesses do have a responsibility to work out what capital structure works for them but they should be treated fairly regardless, and it is great to see that NAB has taken this step and I hope more lenders come on board.”