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Industry at loggerheads over SME definition
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Industry at loggerheads over SME definition

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Reporter 2 minute read

Small business ombudsman Kate Carnell has called for proposed changes to the definition of SME to be enshrined in the banking code amid reluctance from the Australian Banking Association.

The Australian Banking Association (ABA) recently announced that it has committed to adopting seven of the banking royal commission’s recommendations concerning changes to the Banking Code of Practice.

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However, the ABA stated that it “has not yet reached a view” on the commission’s proposal to amend the definition of small business in the banking code to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million.

The banking association issued a warning over the potential impacts of such a change, claiming that it has “serious concerns” about the “material impact” it may have on access to credit for small business borrowers.

Despite the ABA’s concerns, the Australian Small Business and Family Enterprise Ombudsman Kate Carnell stressed the importance of broadening the definition of a small business, claiming that current arrangements are “not workable”.

“This definition was backed by the Murray Review [and] the ABA’s own independent Khoury Review and is applied by the new Australian Financial Complaints Authority,” Ms Carnell said.

“A $3 million aggregate loan limit is just not workable. It potentially excludes a large number of small businesses, particularly those capital-intensive businesses such as farms, building and manufacturing.”

Ms Carnell noted that the ombudsman’s office is in discussion with the ABA and has developed a list of amendments to the code, which she said would offer a “better framework for a balanced relationship between banks and their small business customers”.

Ms Carnell concluded: “Small businesses are the engine room of the Australian economy. They are growing all the time, and reform in this area is vital if we’re to support growth in this sector.

“Banks now have the opportunity to show they’re serious about reform and are willing to change.

“We look forward to a response to our recommendations as a matter of urgency.”

[Related: ABA contests royal commission’s SME reform]

Industry at loggerheads over SME definition
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