The Australian Government has announced an extension of the SME responsible lending exemption. This announcement comes following delays to the passage of new laws that will consequently remove responsible lending obligations for banks.

The SME responsible lending exemption was set to expire on 2nd April 2021 having been originally introduced in March 2020 at the peak of the covid-19 pandemic. The exemption is now set to be extended until the government secures passage of its credit reforms through the Senate.  

The purpose of the exemption was to assist small business with gaining access to credit quickly and efficiently during the pandemic by clarifying that small businesses were not subject to responsible lending scrutiny by the banks. 

Key features of the SME Recovery Loan Scheme include; an 90% government guarantee, permitting borrows to refinance existing loans into the Scheme, including those from the SME Guarantee Scheme, allowing lenders to offer a repayment holiday of up to 24 months, a 7.5% interest rate cap, a maximum loan size of $5 million and a maximum loan term of ten years.

The Treasury has made it clear that the exemption will continue to remain in place until the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 is passed through the Senate. 

This delay will mean that the extension of the SME responsible lending exemption is expected to remain in place until at least 11th May 2021, and until such a time when the bill receives Royal Assent.

The delay comes despite the final report of the Senate economics legislation committee inquiry recommending that the bill progress (albeit with dissenting reports from Labor and Green members), and the bill passing the House of Representatives on Monday (15 March).

However, after being introduced into Senate on Tuesday (16 March), the Senate adjourned the debate for the second reading until the first day in the next period of sittings. This is set for 11th May 2021.

it is expected that the extension of the SME responsible lending exemption will be in place until at least 11 May, and until such a time that the bill receives Royal Assent.

Under the credit reform bill, which has been passed through the House of Representatives, the current practice of “lender beware” will be replaced with a “borrower responsibility” principle. The government hopes that the reduction of extensive information and checks required by lenders will help speed up loan approvals and inject credit into the economy. 

Responsible lending obligations will continue to be required for small-amount credit contracts and equivalent loans by banks as well as consumer leases. 

While small-business lending was not meant to be part of the Credit Act, the federal government believes that the risk aversion of lenders has resulted in some small businesses struggling to access credit, especially when it is difficult to separate their business from their household. 

Last week the Reserve Bank of Australia stated that small businesses continue to be reluctant to access new loans due to the stringent lending requirements which have been put in place by banks and other credit providers.

It has been noted that entrepreneurs in small business panels have been vocal about making it known that access to finance for start-ups is currently a big challenge. Banks often have substantial collateral requirements, and the process for getting finance is extensive and tiring for a lot of people.