What a business borrower has instead of the Code

What stays on the Code’s side

Three protections that a personal borrower may lean on are tied, in the sources, to credit the consumer regime regulates.

The hardship notice shows how tightly the Code is drawn. Section 72 lets a debtor who considers they are or will be unable to meet their obligations under a credit contract give the credit provider a hardship notice, orally or in writing. And the Code defines a credit contract as “a contract under which credit is or may be provided, being the provision of credit to which this Code applies”.

What the sources name on the business side

1. Unfair contract terms, under the ASIC Act

The unfair terms rules for financial products sit in the ASIC Act, not the Code, and they reach past the Code’s line: section 12BF(1) applies them to a term of a “consumer contract or small business contract” that is a standard form contract for a financial product or financial services. The Act draws its consumer side with words close to the Code’s: a consumer contract is one where at least one party is an individual acquiring what is supplied “wholly or predominantly” for personal, domestic or household use or consumption. Which contracts count as small business contracts, and what makes a term unfair, are set out in the Act itself, linked below. The Act also says these rules do not apply to a small business contract that a prescribed Commonwealth, state or territory law applies to.

2. Asking a bank for hardship help

AFCA says that although small businesses lack individuals’ financial hardship rights, under the Banking Code of Practice a small business can still ask its firm for help with financial hardship, and can contact AFCA if unhappy with the firm’s response.

3. Prudential standards, on the lender’s side

ASIC notes that authorised deposit-taking institutions, being prudentially regulated, must comply with prudential standards across the whole of their business, small business lending included. Those standards bind the institution itself, and may require it to make particular inquiries or take verification steps, separately from the responsible lending obligations.

4. The lender’s complaints process, then AFCA

ASIC’s complaints guide treats small businesses alongside consumers: neither has to use the word “complaint” or “dispute”, or put it in writing, for a financial firm’s complaint-handling duties to start. The routes are set out in the guide to disputes for a small business borrower.

5. The small business ombudsman, and the debt helpline

The Australian Small Business and Family Enterprise Ombudsman runs an information line and a dispute support service, reached through its handling debts page. The National Debt Helpline describes the Small Business Debt Helpline as help for small business owners and sole traders in financial difficulty, delivered free by a not-for-profit organisation.

Reading the line from this side

ASIC’s guide frames the purpose test for lenders, but the same test decides which list above a borrower is reading from. ASIC says to look at the purpose of the loan, not the kind of borrower or the security, and that a business purpose takes a loan outside the responsible lending obligations even when an individual borrows against their home. How the test works, and how mixed purposes are counted, is in personal or business purpose. Some credit is outside the Code for reasons that have nothing to do with business at all: see what the Code leaves out.