The Australian Banking Association (ABA) has formally requested an extension of the current exemption for small business loans, seeking to extend it by another two years until October 3, 2026. Additionally, the ABA has urged the Treasury to consider making the exemption permanent to provide long-term certainty and reduce regulatory barriers for small and medium-sized enterprises (SMEs) seeking access to credit.
Initially introduced in April 2020 as a temporary measure during the COVID-19 pandemic, the exemption was designed to facilitate quicker financing access for SMEs. Although initially intended to last only six months, it has been extended three times, with the ABA now advocating for a further extension.
The ABA argues that the exemption has significantly benefited small businesses by simplifying the loan approval process. The exemption allows certain mixed-purpose small business loans to bypass the usual responsible lending obligations, provided there is a genuine business purpose that is neither minor nor incidental. This has enabled quicker and easier access to credit for small businesses, which has contributed to a 61% growth in small-business credit, from $418 billion in July 2019 to $672 billion in June 2024.
Small businesses are crucial to Australia’s economy, contributing 33% of the GDP and employing 42% of the workforce. Over 93% of all employing businesses in Australia are classified as small businesses. Given these figures, the ABA believes that maintaining the exemption is vital, particularly in the current economic climate of inflation and rising interest rates.
The ABA’s submission to the Treasury emphasises that the exemption has not increased customer detriment, such as higher loan defaults. Business loan arrears have remained low at 0.5% in 2024, down from 0.7% in 2019. Furthermore, small-business repossessions have also been minimal, thanks to the banks’ customer-centric approach, which focuses on supporting distressed businesses.
In its submission, the ABA highlights that existing regulatory frameworks and consumer protections, such as the Australian Securities and Investments Commission Act 2001, the ABA’s Banking Code of Practice, and APRA Prudential Standards, continue to safeguard small-business customers. The association asserts that the exemption streamlines the lending process by reducing the number of inquiries and verification tasks required, thereby lowering the cost of credit for small businesses.
The ABA’s submission concludes by strongly supporting the exemption extension and suggesting that it could eventually be made permanent. The association welcomes further discussions with the Treasury. It is ready to provide additional information to support the case for the exemption’s permanency.