Credit Reform: What It Means for Small Business Borrowing

Credit reform in Australia is reshaping how small businesses access funding, with the federal government introducing legislation to cut red tape, improve competition, and simplify lending rules. The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, tabled in the House of Representatives on 9 December 2020, marks a significant shift in credit access policy.

The federal government has introduced legislation to make it easier for small businesses to access credit by reducing red tape and improving competition. The National Consumer Credit Protection Amendment (Supporting economic Recovery) Bill 2020 was tabled in the House of Representatives on Wednesday, 9 December.

Key elements of the legislative reforms include:

• Removing responsible lending obligations from the National Consumer Credit Protection Act 2009, with the exception of small amount credit contracts (SACCs) and consumer leases where heightened obligations will be introduced. If accepted and implemented by the banks this will have a significant impact.
• Ensuring that authorised deposit-taking institutions (ADIs) will continue to comply with APRA’s lending standards requiring sound credit assessment and approval criteria.
• Adopting key elements of APRA’s ADI lending standards and applying them to non- ADIs.
• Allowing lenders to rely on the information provided by borrowers, replacing the current practice of “lender beware” with a “borrower responsibility” principle.
• Removing the ambiguity regarding the application of consumer lending laws to small business lending.

In addition, a new licensing regime will be introduced to protect consumers from the predatory practices of debt management firms by requiring them to hold an Australian credit licence when they are paid to represent consumers in disputes with financial institutions.

In response to the legislation, Assistant Treasurer Michael Sukkar said the principles which underpin responsible lending obligations (RLOs) have been implemented in a way that is no longer fit for purpose and which risks slowing our economic recovery.

“The prescriptive approach outlined in RLO guidance and adopted by lenders leaves borrowers and lenders facing a ‘one-size-fits-all’ approach — imposing a similar approach to credit assessment for most consumers and credit products, irrespective of their circumstances,” Mr Sukkar said.

“The government’s reforms will remove the ‘one-size-fits-all’ approach, enabling the more efficient flow of credit to consumers and small businesses, while also strengthening protections for higher-risk products and vulnerable consumers using small amount credit contracts and consumer leases.”

Further, Mr Sukkar said the reforms will simplify Australia’s credit framework, reduce red tape, improve competition and enable a more efficient flow of credit while maintaining strong consumer protections.

“Credit is the lifeblood of the Australian economy, with billions of dollars in new credit extended to households and businesses in Australia each month, helping them to buy a home, grow their business and invest to create jobs,” he said.

New Licensing Rules for Debt Management Firms

As part of the reform, the government will also introduce a licensing regime to regulate debt management firms. Companies that are paid to represent consumers in financial disputes must now hold an Australian credit licence, helping protect vulnerable consumers from predatory practices.

Why the Reform Matters for Small Businesses

Assistant Treasurer Michael Sukkar stated that responsible lending obligations had become too restrictive, applying a rigid “one-size-fits-all” standard to all consumers and credit products. This, he argued, was stifling credit flow and potentially slowing economic recovery — especially following the COVID-19 pandemic.

By removing outdated obligations and adopting a principles-based credit framework, the government aims to:

• Support faster, more tailored lending decisions

• Reduce unnecessary red tape for lenders and borrowers

• Enhance access to credit for small businesses

• Maintain strong protections for high-risk credit products

Credit Reform and Economic Recovery

“Credit is the lifeblood of the Australian economy,” Mr Sukkar noted. “Billions of dollars in credit are extended to households and businesses each month — enabling Australians to buy homes, grow businesses, and invest to create jobs.”

The credit reform is designed to streamline access to finance at a time when many small businesses are rebuilding post-pandemic. By simplifying lending requirements and improving competition, the reform encourages responsible borrowing while accelerating recovery.

What Small Businesses Should Do Now

• Review your borrowing capacity under the new rules.

• Engage with a trusted adviser or finance broker to understand how the borrower responsibility principle affects your obligations.

• Take advantage of streamlined credit processes when seeking finance for growth, expansion, or recovery.

• Monitor regulatory updates, especially for those using debt management firms or operating close to consumer lending thresholds.

David Robson

General Manager

Eclipse Advisory Pty Limited

12^th December 2020

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