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ASBFEO chastises lender for refusing to mediate

The small business ombudsman has called out a short-term lender after it reportedly “refused to engage in mediation” and took direct action against a small business client.

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has urged small business owners to “do their homework”, before taking out a loan – noting that not all lenders are members of the Australian Financial Complaints Authority (AFCA).

The warning came after the ombudsman’s office issued a notice of refusal to mediate under section 74 of the act, against lender Prudent Capital Pty Ltd. It is reportedly only the second time that the ASBFEO has issued such a notice.

The ombudsman’s office reportedly received a request for assistance from a small business in dispute about its loan with Prudent Capital, however Prudent Capital “refused to engage in mediation and proceeded to take direct action against the small business,” the ASBFEO said.

“I am extremely disappointed by the refusal of Prudent Capital to engage in mediation and seek to resolve the dispute in a fair way and I continue to encourage Prudent Capital to reconsider its refusal,” Ms Carnell said.

“The dispute involved allegations that Prudent Capital applied substantial interest and penalties to the loan that increased through its own delays.

“It was also alleged Prudent Capital acted in ways that obstructed the small business from refinancing.

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“This serves as a timely and critical reminder to small businesses to ensure the lender is an AFCA member before taking out a loan,” she said, noting that borrowers can “only access a free and independent dispute resolution process for their financial complaints if their lender is an AFCA member”.

“Not all lenders are AFCA members – in fact many are not – and small businesses need to be aware of the risks,” she said.

“Access to funding continues to be a major issue for small businesses. It’s crucial they make the right choices when it comes to managing their finances.”

She encouraged small businesses to seek advice from an accredited adviser before “making any big decisions.”    

As well as issuing the warning, the ASBFEO also noted that the federal government has expanded its Coronavirus SME Guarantee Scheme, which was launched in March of this year.

To date, the scheme has already seen more than 15,600 businesses accept loans worth $1.5 billion. 

The initial phase of the scheme – which covers unsecured loans of up to $250,000 for a term of no more than three years, remains available for new loans issued by eligible lenders until 30 September 2020. 

The Treasury has now revealed that it is expanding the scheme to “help businesses move out of hibernation, successfully adapt to the new COVID-safe economy and invest for the future".

The second phase of the scheme comes into effect from 1 October 2020 and has been expanded to offer loans up to $1 million, including (non-property backed) secured loans for a maximum term of five years.

Under the scheme, the government, in partnership with 44 approved lenders, will guarantee 50 per cent of new, unsecured loans to SMEs. 

“We support this next phase of the Coronavirus SME Loan Guarantee Scheme, which aims to help businesses emerge from hibernation and adapt to COVID-safe protocols so they can continue to operate and ultimately grow,” Ms Carnell said.

“Crucially, the extended terms of the scheme provides small businesses more affordable credit over a longer period so they can invest in their future.

“The new loan will have a maximum term of five years – up from three.

“This time round, lenders have [the] discretion to offer a loan repayment holiday and interest accrued over that period will be spread over the course of the loan.”

[Related: Banks on board for new loans program]

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