The following summaries provide further analysis of the key themes or conduct that was raised in public submissions received by the Commission.
Figure 9: SMEs submissions: Key themes
The Commission received over 315 submissions that focused on unfair or irresponsible small business lending practices. While these submissions raised similar concerns regarding responsible lending to those raised by individual consumers, there were some distinct themes. These included:
- the lender proceeding with approval of a small business loan where it should have been clear that the business would not succeed, either due to limited profitability or the borrower’s capacity to manage a business;
- the lender or broker inflating figures relating to the borrower’s financial circumstances in order to secure lending; and
- the lender offering extensions to existing small business loans where there was no evidence the business was able to service the loan.
Changes in terms of lending
The Commission received more than 230 submissions referring to lenders changing the terms of SME loans unilaterally or without giving adequate notification to the borrower. These submissions often referred to a power imbalance between SME borrowers and lenders, with lenders able to decide the terms on which a loan may continue or should be terminated.
Issues in relation to changes in terms of lending included:
- lenders giving verbal approval for a loan and subsequently rejecting a formal loan application, in some circumstances after the borrower had already entered into contracts with service providers;
- lenders altering repayment or review timeframes, often involving unreasonable timeframes for repayment of a loan;
- false assurances made to borrowers about the rollover or renewal of their loans; and
- substantial increases to interest rates, merchant fees or other fees and charges without notice to the small business owner.
The Commission also received 68 submissions from former customers of Bankwest, which substantially related to decisions to call in loans following the acquisition of Bankwest by CBA. These, along with other submissions and information received by the Commission, informed the lines of inquiry considered and undertaken by the Commission in relation to changed terms of lending. At the commencement of the fourth round of hearings, Bankwest complainants were invited to lodge further submissions.
Hardship assistance and enforcement of defaults
The Commission received over 160 submissions in relation to SME lending that related to the lack of available assistance for SMEs experiencing financial difficulties, and the approach taken by banks to taking enforcement action on defaulted loans. The following issues arose in relation to hardship assistance and default:
- lenders failing to respond to early requests for assistance from small business lenders experiencing financial difficulties prior to default;
- lack of notice prior to enforcement action being taken to appoint receivers or to require the sale of a business;
- refusal of offers to refinance or pay down debt once a loan had been defaulted; and
- sale of property by lenders or receivers at substantially below perceived market value, sometimes involving refusal to accept offers from a borrower to refinance with another lender.
Improper conduct and poor administration
The Commission received more than 90 submissions which identified concerns about improper conduct or poor administrative practices that arose in relation to SME lending. Issues raised in relation to improper conduct and poor administration included:
- falsification of documents, including loan application information, valuations, or other documents required to secure approval of a business loan;
- failure by lenders to obtain appropriate authority from all business owners in relation to significant transactions, particularly in the context of failing businesses;
- alleged breaches of the borrower’s privacy by lenders, including disclosure of personal information to joint account holders; and
- errors or delays in processing of deposits, payments and settlements, in many cases affecting relationships with contractors and service providers of SMEs.
Over 80 submissions about SME lending primarily raised concerns about third party guarantees. Submissions often referred to SME loans that were guaranteed by family members of the small business owner using their primary residence. Key issues raised included:
- defects with the guarantor’s consent, such as where guarantor agreements were signed without the guarantor fully understanding the effect of the agreement or where there was pressure placed on the guarantor to sign;
- falsification of guarantor documents or failure to provide complete documents to a guarantor for consideration before signing; and
- the consequences of enforcement of a guarantee over a primary residence of a third party, particularly where they were elderly or a low income earner and the financial and personal impact on guarantors and their families.