Small business to the Royal Commission: why aren’t you helping us?

Aussie SMEs (small to medium enterprises) are feeling disappointed and overlooked following the the first results of the much-anticipated Royal Commission’s report into Misconduct in the Banking, Superannuation, and Financial Services Industry.

In the interim report, released on 28 September 2018, Commissioner Kenneth Hayne said that although small businesses struggle with loan terms and communication with banks, there was no substantial evidence to overhaul loan frameworks to give SMEs more protection.

So what exactly were the findings of the report, and what does this mean for the future of small businesses in Australia?

Here’s the lowdown on what you need to know.

First things first: what is the report?

The Royal Commission’s report was launched on 14 December 2017, as a much-overdue response to years of lobbying and pressure from politicians, SMEs, and consumer groups. Over the years, SMEs have raised concerns over loans misconduct by banks, which have left business owners struggling with repayments, or shutting up shop entirely.

More than 630 SMEs made submissions to the Royal Commission, detailing their experience with lenders.

The purpose of the commission is to dig deeper into the behaviour, in order to:

  • Evaluate if any misconduct took place
  • Investigate if any legal or criminal proceedings should be referred to the commonwealth
  • Consider if the current compensation for those affected is fair
  • Review if legal frameworks for small business loans should be overhauled

The interim report comes after six rounds of hearings over the past 9 months, and spans over 1,000 pages across 3 volumes.

What are the key findings in the interim report?

The commission’s report acknowledges that small businesses feel powerless, and that banks acted irresponsibly, with greed and the pursuit of profit taking precedence.

Commissioner Haynes said that “too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty.” The commission also sided with SMEs on compensation, saying many acts of misconduct either went “unpunished or the consequences did not meet the seriousness of what was done”.

However, these statements aren’t backed by strong recommendations for a legal overhaul. The commission has said there still isn’t enough evidence to support a significant change in legislation that gives SMEs more protection – including recommendations on changing small business loan terms, changing loan guarantee laws, or providing small businesses better access to finance.

How do SMEs feel about the results?

SMEs were one of the key driving forces behind the Royal Commission, and have been one of the hardest hit by the lending practices of big banks. It’s no surprise, then, that the report has left many feeling ignored and powerless against the big players.

The Commission was also largely dismissive of many case studies, such as Commonwealth Bank, where 43 SMEs submitted cases where their loans had been unfairly terminated or refused renewal during the CBA acquisition in 2008.

Consumer groups highlighted that although the commission was critical of many financial institutions, it’s the lack of concrete outcomes that is disappointing.

“Because there are no recommendations, the interim report doesn’t really change much. It certainly won’t make it better,” small business ombudsman Kate Carnell said.

Many SMEs also feel they have lost their chance to tell their story, and regional and rural businesses have been completely overlooked so far in the process. Of the 9,300 submissions, the Royal Commission has only listened to 27 case studies across three capital cities.

“We didn’t hear anything back,” said Elizabeth Furneaux, an SME who made a submission to the commission. “We all know it should be going longer. There are so many people out there. I tell you what, a hell of a lot of people have had their lives ruined from all of this.”

So, what’s next for the Royal Commission?

To date, the Royal Commission seems to be largely talk and little action for SMEs. The next rounds of investigation are set to focus on the policy questions raised in the interim report, with the final report due on 1 February 2019.

However, it’s not time for SMEs to hang up the towel. While Commissioner Hayne hasn’t said he needs more time, Labor, the Nationals, and the Greens have all called for an extension so more case studies from SMEs can be considered.  

“If the commissioner asks for more time, the Prime Minister has made clear he will get it,” said a spokesperson for Small Business Minister Michaelia Cash.

In short, the battle isn’t over yet and the next months are crucial. Keep an eye on Yellow Pages’ Business Hub and subscribe to our newsletter to receive latest updates on the royal commission as they unfold.