As Australia’s financial services industry faces continued pressure from the Australian Small Business and Family Enterprise Ombudsman to improve small business lending practices, National Australia Bank (NAB) said it is overhauling its existing SME and SMB loan contracts.
The bank announced on Friday (Oct. 6) that 130,000 small business owners will be affected by the initiative, which aims to shorten and simply contracts, writing them in “plain English.” The bank is also cutting a third of its existing terms and conditions.
“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,” said Leigh O’Neill, NAB’s executive general manager of business direct and small business, in a statement. “Sentences are in plain English, without unnecessary complexity. We consulted widely with the industry and customers. Essentially, if the language didn’t make sense to them, we worked through a better solution together.”
In other news, NAB had previously announced it would no longer use financial indicator covenants in “most” loans for both new and existing small business owners who borrow less than AU$3 million.
“The importance of a simple and fair contract cannot be underestimated,” said Sharon Cook, NAB’s chief legal and commercial counsel, in another statement. Cook is working with other players in the banking industry, reports said, in response to ombudsman Kate Carnell’s Small Business Loans Inquiry report, which raised concerns about how banks lend to small businesses.
Despite NAB’s latest initiative, Carnell appears frustrated with the industry. Last month, she said getting banks to comply with SMB lending rules is “like pulling teeth,” and that banks had been trying to “game” the rules.
“It’s hard to understand why all these things are like pulling teeth,” she said. “[The new rules] came into effect last November, and it has taken my office and the ASIC until now to take them to where they are pretty close to complying with a law that has been in effect for eight months.”
Those rules required banks to cut unfair terms from small business loan contracts, including any “entire agreement clauses.”