THE Australian Small Business and Family Enterprise Ombudsman Kate Carnell said an overhaul of lending laws proposed by the Federal Government would offer a necessary funding injection to the small business sector.

Under the plan announced today by Treasurer Josh Frydenberg, lending laws will be changed to lift onerous barriers to small businesses applying for loans.

“Access to finance is critical to small business survival, particularly as support measures are tapered over the coming months,” Ms Carnell said.

“The reforms outlined today would give small businesses the confidence they need to seek funding to get through this crisis, so they can grow and employ. Since the Banking Royal Commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks.

“The pendulum has swung too far and now is the time to correct this imbalance which is harmful to small businesses.    

“Even in the best of times, many small businesses struggle to secure finance, with a recent Sensis report revealing that of the dwindling number of small businesses that applied for a loan in the three months to August, about one in four had been knocked back. There’s a good chance the onerous small business loan application and bank assessment process is partly to blame.

“We are aware of small businesses that have been asked for all sorts of documentation by the banks - even for loans that have been 50 percent guaranteed by the federal government – including director guarantees, which really means the family home. It’s no wonder small business owners are reluctant to borrow.

“Importantly the banks will still be accountable to ASIC and the Government has pledged greater protections for vulnerable borrowers. ASIC will also have the power to impose penalties for prohibited or excessive fees and interest charges," Ms Carnell said.

“Small business borrowers should always ensure their lender is an AFCA member and to go their trusted accredited financial adviser before taking out a loan.”

www.asbfeo.gov.au

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THE Federal Government has given the rebuilding of the economy a big boost by removing overly restrictive lending requirements for finance lenders, including mortgage finance, according to Master Builders Australia.

Denita Wawn, CEO of Master Builders Australia said, “We commend the Federal Government for winding back regulation to a more reasonable position that allows the market more flexibility to approve housing finance. We hope this means that banks will reconsider their loan to value ratios (LVRs) to help people overcome the deposit gap.

“We expect that loan applications for borrowers should also become less cumbersome.

“The Reserve Bank has already flagged that the tighter regulatory provisions have been holding back credit growth and some banks have acknowledged that they have been forced into being overly conservative,” Ms Wawn said. 

“It is good to see the Federal Government is giving banks flexibility to deal with applications on a case by case basis which should result in lenders providing mortgage finance to more people.

“It should help streamline the processing of HomeBuilder applications on top of pre-approval processes which have been adopted in some states. All states and territories should adopt these pre-approval processes,” Ms Wawn said. 

“Access to finance, land titling and planning approvals can substantially delay building of new homes and measures are needed to remove these impediments and speed up processing of HomeBuilder applications.

“While today’s announcement should open up access to mortgage finance, we now need state and territory governments to activate their option under the agreement with the Federal Government to extend the HomeBuilder construction deadline from three to six months, as has already occurred in Victoria. 

“This will ensure that the economic stimulus provided by HomeBuilder can be maximised to save more tradie jobs, and give more people access to the opportunity HomeBuilder provides,” Ms Wawn said.

www.masterbuilders.com.au

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NEW COVID-19 related research conducted by the ARC Centre of Excellence in Population Ageing Research (CEPAR) and super fund Cbus has identified that urgent short-term needs for funds are driving people’s decision to withdraw some or all of their superannuation savings under the COVID-19 Superannuation Early Release Scheme.

The study has also revealed that many people who withdrew their super over the past few months are uncertain about the long-term consequences of their decision.

To understand the operation and effect of the COVID-19 Superannuation Early Release Scheme, a multi-organisational research team analysed survey results of over 3,000 members of Cbus, a leading industry superannuation fund, who withdrew some or all of their superannuation savings in the first phase of the COVID-19 Superannuation Early Release Scheme between April and June 2020.

The results show that the $10,000 limit both guided and constrained withdrawal amounts and that most respondents withdrew the upper limit. Around 25 percent of surveyed members withdrew almost their entire account balance, according to the study.

Immediate financial need (59%) and concerns for future expenditures (27%) were the main reasons members gave for accessing savings. 

“Some surveyed members expressed they are uncertain about the long-term consequences of their decisions,” said study co-author Susan Thorp, professor of economics at the University of Sydney Business School.

“Around one third of respondents said they were unsure about the impact of their withdrawal on their retirement balances, or had not thought about that, or did not care,” Prof. Thorp said.

Co-author Hazel Bateman, professor of economics at the UNSW School of Risk and Actuarial Studies, said they also compared respondents’ estimates of the impact of their withdrawal with a projection of that impact based on assumptions made in a Cbus guidance on the early release scheme for members.

“Around half of the survey respondents either underestimated or didn’t estimate the impact of the withdrawal on their superannuation balance at retirement,” Prof. Bateman said.

“These findings demonstrate that many withdrawers either could not or did not evaluate the impact of their decision.

“However, another finding is that those who spent longer thinking about their decision and consulted more information sources before withdrawing their savings, held more realistic expectations of the impacts on retirement wealth and were half as likely to decide to withdraw within one day or less than members who used no information sources.

“This shows that more attention to information is related to an attempt to assess impact on retirement balances,” Prof. Bateman said.

Robbie Campo, Cbus Super group executive, said, “This research highlights the fundamental importance of the super systems cornerstones – compulsion, universality and adequacy. Cbus’ membership recognises the importance of these principles to ensure all Australians can enjoy a dignified and secure retirement.”

Background:

The COVID-19 Superannuation Early Release Scheme was one of the first pandemic-related policy changes made by the Australian Government. By mid-August 2020, Australian superannuation fund members had made more than 3 million applications to withdraw retirement savings under the COVID-19 Superannuation Early Release Scheme, supporting more than $31 billion in payments.

Full industry report: https://cepar.edu.au/sites/default/files/20K-now-or-50K-later-WhatsDrivingPeoplesDecisionToWithdrawTheirSuper.pdf

Key findings of the industry report:

• Surveyed COVID-19 early release scheme applicants expressed urgent short-term need for funds and considerable uncertainty about the long-term consequences of their decision.
• The $10,000 limit both guided and constrained withdrawal amounts.
• Around 25% of surveyed members withdrew almost their entire account balance.
• Immediate financial need (59%) and concerns for future expenditures (27%) were the main reasons members gave for accessing savings.
• Around 30% of surveyed applicants were unsure of, or unconcerned about, the long-term consequences of their withdrawal.
• Around 50% of surveyed applicants either underestimated, or didn’t estimate, the impact of the withdrawal on their superannuation balance at retirement.
• Members who collected information from Cbus and from other sources, such as news services or social media, were half as likely to decide to withdraw within one day or less than members who used no information sources.
• Members who spent longer thinking and consulted more information sources before withdrawing their savings held more realistic expectations of impacts on retirement wealth.

About CEPAR

The Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR) is a unique collaboration between academia, government and industry, committed to delivering solutions to one of the major economic and social challenges of the 21st century. The research centre is based at the University of New South Wales, with nodes at the Australian National University, Curtin University, the University of Melbourne and the University of Sydney.

cepar.edu.au

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THE Joint Select Committee on Implementation of the National Redress Scheme will begin public hearings this week, helping to shape the recommendations to be made in its Second Interim Report.

The Committee’s First Interim Report, tabled in May 2020, made 14 detailed recommendations that were intended to inform the Scheme’s legislated second anniversary review.

Committee Chair Senator Dean Smith noted that, while the second anniversary review is ongoing, a number of issues associated with the operation of the Scheme need to be considered now.

These issues include defunct institutions and the operation of the funder of last resort mechanism, awareness and access to the Scheme for Indigenous Australians, and the impact of COVID-19 on the provision of specialised redress support services.

Protecting survivors from opportunistic behaviour by legal practitioners, who seek to target them for financial benefit under the guise of assisting with applications, will also be considered.

“The Committee is dedicated to ensuring the National Redress Scheme is continually recalibrated to improve the experience of survivors,” Senator Smith said.

The Second Interim Report is expected to be tabled in Parliament in early 2021.

Public hearing program

Date: Friday, 25 September 2020
Time: 10am to 1pm
Location: via teleconference

Date: Monday 28 September 2020
Time: 9am to 11.15am
Location: via videoconference

The hearing will be broadcast live at aph.gov.au/live and public hearing programs will be available at the Committee website prior to the hearing.

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