The government is providing lenders with an exemption from responsible lending obligations for a period of six months for those providing credit to certain customers.
In the past week, the government, Reserve Bank of Australia and lenders have launched a range of initiatives and packages to help small and medium-sized enterprises impacted by the ongoing coronavirus pandemic access credit for cash flow needs.
So far, more than $189 billion of economic support packages – the equivalent of 9.7 per cent of gross domestic product (GDP) – has been earmarked to protect the economy with the vast majority focused on bolstering small-business finance.
Following on from the release of these packages, the federal Treasurer Josh Frydenberg has announced a temporary exemption around responsible lending obligations in certain circumstances.
Mr Frydenberg explained that while responsible lending obligations do not apply to loans used predominantly for business purposes, lenders must undertake due diligence to confirm that the money borrowed meets this test.
However, in order to allow lenders to “move quickly to support small businesses”, the government will provide an exemption for this rule for a period of six months.
This exemption will only apply to lenders who provide credit to existing small-business customers, provided there is an existing borrowing relationship and some proportion of that credit is used for business purposes.
Mr Frydenberg outlined that it will apply to new credit, credit limit increases and credit variations and restructures.
However, the Treasurer emphasised that credit providers regulated by the Australian Prudential Regulation Authority (APRA) will remain subject to APRA’s prudential standards while the exemption applies, and providers who subscribe to an industry code will remain obliged to abide by that code.
The Australian Financial Complaints Authority will also retain its current jurisdiction to resolve complaints relating to lending.
“The government recognises that the environment for small business has changed and continues to evolve with the rapidly evolving challenges posed by the coronavirus,” Mr Frydenberg said.
“This exemption represents a deliberate, measured and targeted adjustment of regulatory settings to provide the certainty and confidence necessary to allow small businesses access to credit in a timely and efficient manner.”
He continued: “The Morrison government will continue to work closely with the banking industry and our financial regulators to support Australian jobs and businesses during this challenging time.”
The move follows on from an additional support package issued by government on Sunday (22 March).
The new package, totalling $66.1 billion, includes a government guarantee for 50 per cent of new SME loans and a new, automatic cash payment of up to $100,000 for SMEs.
Speaking at the time, Prime Minister Scott Morrison said the government was acting to “cushion the blow” from the coronavirus for businesses and households to help them get through to the other side of the crisis.
“We want to help businesses keep going as best they can and for as long as they can, or to pause instead of winding up their business. We want to ensure that when this crisis has passed, Australian businesses can bounce back,” the Prime Minister said.
“Our focus is on cushioning the blow and providing hope to every Australian that we will get through this and come out the other side together.
“We know this will be temporary. That’s why all our actions are geared towards building a bridge, keeping more people in work, enhancing the safety net for those that aren’t and keeping businesses alive so they can get to the other side and stand up their workforce as quickly as possible.
“We know Australia’s more than 3 million small and medium businesses are the engine room of our economy. When they hurt, we all hurt,” he said.
“The next few months are going to be a difficult journey, but we all have a role to play to adapt to the changes we’re facing, to cushion the impact of what is happening and to pull together so we can bounce back when we get to the other side.”
Mr Frydenberg added: “The government is taking unprecedented action to strengthen the safety net available to Australians that are stood down or lost their jobs and increasing support for small businesses that do it tough over the next six months.
“These measures build significantly on what we have already announced. These extraordinary times demand extraordinary measures.”
[Related: ‘More help’ issued for SMEs and sole traders]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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