Schedule 3: Small Business Finance

Introduction

3.1 This Schedule relates to Small Business lending where the finance we provide is to be used for a purpose that is wholly or predominantly a business or commercial purpose. This means the finance will not be used predominantly for household, domestic or personal purposes, such as living expenses or the purchase of household goods.

3.2 Loans for predominantly business or commercial purposes are not regulated under the NCCP Act.

3.3 This Schedule and the Code relate to term loans and other forms of finance that may be available to Small Business customers covered by this Code, but it does not apply to finance for Commercial Property, Large Corporate, or government and semi-government customers. This Schedule does not apply to Insurance Premium Funding Products which are covered by Schedule 5.

3.4 If your loan relates to a vehicle to be used for business purposes, the information about commercial vehicle finance at paragraphs 3.29 to 3.51 below may be relevant to you.

About Small Business loans

3.5 Small Business loans may be provided as secured or unsecured loans.

3.6 A secured loan is secured by a specific form of collateral, including physical assets such as property and equipment, or liquid assets such as cash, or other assets, such as inventory or accounts receivable. For example, an equipment loan is a type of secured business loan where security is taken over the asset or equipment you are using the loan to purchase.

3.7 Alternatively, security may not be required at loan origination (which means the process we use to assess and approve your loan application), but we may have the right to lodge a caveat or a “personal property security” interest in accordance with your loan contract. We may also request to have a personal property security interest on other assets in the form of what is called a “general security agreement”. A general security agreement creates a security interest in your present and future assets. This means we would have access to all assets your business owns now and any future assets your business purchases as collateral for the loan issued. All security agreements must be registered on the Personal Property Securities Register maintained by the government.

3.8 You may be required to sign a personal guarantee in relation to a secured loan. This means that you may be personally liable for any debts taken out by your business if the business defaults on the loan.

3.9 An unsecured loan does not require any type of collateral. Instead of relying on your pledged assets or other goods as security, we can provide an unsecured loan based on our assessment of your creditworthiness taking into consideration a number of factors, including your credit history.

3.10 You may be required to sign a personal guarantee in relation to an unsecured loan.

Obtaining a Small Business loan

3.11 We will tell you how to apply for a loan including the information we need to assess your application. That information may be different depending on the type, size and purpose of the loan you are applying for.

3.12 You may be required to sign a “business purpose declaration” that confirms the credit to be provided is wholly or predominantly for a business purpose or investment purpose other than investment in residential property.

3.13 We will make our lending decisions, including decisions to increase existing loan products, based on information that has been provided to us or that we have collected. We will only provide our products and services to you where we believe you meet the requirements of our product and credit policy requirements.

3.14 We rely on the information you provide to us. We expect you or your representative, such as your finance broker, to provide full and accurate information when applying for a loan or the extension or increase of an existing loan product.

3.15 Before you accept a loan offer from us, we will give you our terms and conditions that will contain information about fees and charges and the features of the loan. This information might also be provided in the form of a summary or terms sheet. For term loans this includes:

a. the loan amount;

b. the repayment amount;

c. the term;

d. any early repayment fees (if applicable); and

e. whether any commissions may be paid or received in relation to your finance and by whom (if applicable).

3.16 For some forms of Small Business finance, not all of the information in 3.15.a.-e. is relevant or may not be ascertainable. For example, a “repayment amount” and a “term” cannot be determined for a revolving facility, such as a line of credit as the facility can be repeatedly drawn down by you in accordance with the terms and conditions of the product. We will give you clear information about fees and charges and features that are relevant to these finance products.

3.17 The documentation for our loan products will be drafted to comply with all applicable laws and regulations.

3.18 We will make sure any fees and charges payable to us after disbursement of the loan amount (such as late payment fees or direct debit dishonour fees) are reasonable having regard to the protection of our legitimate interests. Our costs include charges imposed by our service providers, where applicable.

After you take out a Small Business loan

3.19 Unless a longer period is required by law, we will use reasonable endeavours to give you 30 calendar days prior notice before we change your loan product (excluding changes to loan facility limits) or key contractual terms, except where a shorter period would be appropriate – such as giving you more time to repay your loan. Any agreed changes can commence from the time the change is agreed with you or from a later agreed time.

3.20 If we are permitted under your loan contract to change your interest rate and we want to do so, we will tell you as soon as possible, and in any event, no later than the date of the change, unless we are not able to because the interest rate is calculated according to a money market or some other external reference rate, or a rate otherwise designated as a variable rate or floating rate.

3.21 We will, at your request, give you information relating to your finance agreement, including a copy of your loan contract, terms and conditions and standard fees, a statement of your outstanding balance and any notice(s) we previously gave to you which is relevant to us exercising our rights. We will do this within 14 calendar days for loans less than a year old, and within 30 calendar days for loans more than a year old. If we cannot provide a document within this timeframe – for example, because the information request is more complex, or you or someone acting on your behalf with your authority has requested copies of all the documents and information relevant to your loan, we will advise you of this together with the expected timeframe for providing the documents. Documents may be in electronic, digital or any form mutually agreed.

3.22 We may also make information available to you through a self-service portal that has account information such as limits, payments, available credit and documents relating to your finance agreement.

When a loan is not extended

3.23 If you have a business loan and you are not in default, and the principal owing on your loan is not due to be fully repaid at the end of the scheduled term by regular periodic repayments, we will remind you about the loan termination date so that you have a reasonable period of time to apply for further finance or seek alternative finance.

3.24 If we extend or refinance your loan, we are not obliged to do so on the same terms and conditions.

Defaults, debt recovery and enforcement of loans

3.25 If you are a Small Business customer covered by this Code and you default or are at risk of defaulting on your obligations to us under your contract, you should contact us as soon as possible to seek assistance.

3.26 If you are in default, we will generally give you a notice to remedy the default (where the default is capable of being remedied) within a specific period before we either require you to repay the loan in full, return the asset or other goods or vehicle (if your contract is a lease) or start enforcement proceedings (including repossessing any security). We may not give you a notice if the law or our loan contract doesn't require us to. Your contract will specify how and when we will give you notice.

3.27 Our loan terms and conditions will specify how and when we will enforce a loan in relation to non-monetary defaults. A non-monetary default refers to a failure to keep, perform or observe any covenant, condition or agreement in your loan documents other than the obligation to repay money. This can include, but is not limited to, things such as:

• you or your Guarantor is insolvent or goes into bankruptcy, voluntary administration or some other insolvency process, or no longer has legal capacity;
• another creditor takes action against you or your Guarantor;
• you or your Guarantor gives us information that is materially incorrect or misleading (including by omission);
• you use the loan for a purpose that has not been agreed by us;
• legal or beneficial ownership, management or control of your business or a Guarantor changes without our consent;
• you have breached a key contractual term that results in an “Event of Default”;
• it becomes unlawful for you or us to continue with the loan; or
• you have breached the law and we reasonably consider that this is likely to have a material impact on your ability to meet your financial obligations.

3.28 We will give you a notice specifying the grounds on which we consider there is a non-monetary default and give you reasonable time to remedy the non-monetary default where it is able to be remedied and we are willing to continue with the contract. However, there may be circumstances where it is reasonable for us not to do this – for example, where we believe there is a risk of the asset being disposed of.

Commercial Vehicle Finance for Small Business customers

3.29 This section provides some further information about commercial vehicle finance for Small Business customers.

3.30 Vehicles and vehicle fleets operated by Large Corporate Customers, government and semi-government entities are out of scope for the purposes of this Code.

About commercial vehicle finance

3.31 Commercial vehicle finance enables a Small Business customer who requires a vehicle or fleet of vehicles to operate their business to manage the acquisition, maintenance and disposal of those vehicles in a way that best suits their operational needs and financial circumstances. There can be different tax consequences depending on the type of finance.

Chattel mortgage

3.32 A chattel mortgage normally has a similar structure to a fixed rate home loan or mortgage. “Chattel” refers to the vehicle and “mortgage” refers to the loan. We use the vehicle(s) as the security for your loan.

3.33 Unlike a finance lease, operating lease or hire purchase, a chattel mortgage gives you ownership of the vehicle(s) and you then pay off the loan from the income in your business.

3.34 Subject to the terms and conditions of your loan and our credit policies, repayments may be structured over a range of terms and can be set at the same amount each month or structured to fit seasonal cash flow requirements. A balloon or residual payment can be set at the end of the term.

Finance lease

3.35 A finance lease is a rental agreement where we own the vehicle and you rent it from us for an agreed scheduled payment. Where the vehicle is managed by a service provider (such as a fleet management company), running costs associated with the vehicle may be included in the lease. However, where running costs are included on an estimated or budgeted basis, if the running costs are higher than anticipated, you may need to pay additional amounts to cover those costs.

Operating lease

3.36 An operating lease is similar to a long-term vehicle rental. We own the vehicle(s) and provide them to you for exclusive use. If the vehicles are fully maintained under the lease, the rental, specified maintenance and registration costs are combined into one scheduled payment. If the actual running costs are higher than the estimated costs included in the lease rental, you will not have to pay any more. A fully maintained operating lease will usually include a provision for additional maintenance costs to be the responsibility of the lessee if the lessee's use of the vehicle is different from the original estimate – for example, because the lessee drives twice the number of estimated kilometres in the first year.

3.37 Alternatively, under a non-maintained operating lease, vehicle maintenance and running costs are not included in the monthly lease rental. You will be responsible for paying and administering all maintenance and other running costs.

3.38 You do not pay a deposit or other upfront payment and the vehicle is returned to us at the end of the operating lease.

Hire purchase

3.39 Hire purchase is another form of vehicle finance. Under a hire purchase agreement, we as the lender give you use of the vehicle in return for regular payments over an agreed period of time. There is no upfront deposit payable.

3.40 When you make the final payment, you own the vehicle. Hire purchase agreements can be structured with a Balloon Payment.

Taxation

3.41 There may be different taxation consequences for your business depending on the type of finance and you should consider obtaining professional taxation and accounting advice that takes account of your circumstances.

Taking out commercial vehicle finance

3.42 Applying for commercial vehicle finance is similar to the process for applying for other types of Small Business finance. We will tell you how to apply for the finance, including the information we need to assess your application. You may be required to sign a “business purpose declaration”.

Setting up a commercial vehicle finance agreement, including leases

3.43 We will give you a proposed contract setting out all the relevant information about your agreement with us so that you can make an informed decision and understand the key features, benefits, and costs of the finance before entering into an agreement with us.

3.44 We will provide written details of any circumstances under which the payments or vehicle specification might change before delivery of the vehicle to you. We will also clearly set out information about breaches of the leasing or finance agreement due to events (such as late or incorrect payments and the potential consequences of not keeping up with payments).

Information about your commercial vehicle finance

3.45 The finance documentation will set out:

• the details of the vehicle(s) you have chosen;
• the proposed term of the agreement;
• the estimated payments you will make under the agreement as well as the number and frequency of the payments;
• your responsibilities where applicable, regarding servicing and maintenance of the vehicle(s);
• any fees, taxes or charges related to the vehicle(s) that you are required to pay;
• information about the condition in which you are expected to return the vehicle(s) at the end of the agreement, if applicable;
• the options that may be available at the end of your agreement term; and
• the implications of ending the agreement before the contract end date.

Vehicle maintenance

3.46 If we are responsible for servicing and maintaining the vehicle(s), we will have practices and alerts in place so that servicing and maintenance is carried out in line with the manufacturer's guidelines and specifications.

3.47 If you are responsible for servicing and maintaining the vehicle(s), then our agreement will specify that this is to be carried out by you in line with the manufacturers' guidelines and specifications.

Early or voluntary termination of your agreement

3.48 We will clearly explain our policies about early termination or voluntary termination of an agreement. This may include information about any charges for unreasonable wear and tear, the recovery of any loss of value, any adjustments to finance or maintenance fees and charges, and the steps we will take in the event of a total loss of a leased vehicle, if relevant or requested by you.

Extension of your agreement

3.49 We are under no obligation to extend your agreement. However, if we do agree we will provide you with clear information about any changes to the services provided under the contract and the associated fees and charges. We will also provide information about the circumstances in which the vehicle might be taken back by us during any extension period.

At the end of your agreement

3.50 Your lease agreement documentation will explain our vehicle return standards, including vehicle condition, service and maintenance, and vehicle accessories. We will take reasonable steps to ensure that you understand what is required to return a vehicle with all required documentation and in the condition we require.

3.51 We will tell you about the vehicle collection process and our inspection procedures, as well as any additional charges that may relate (but are not limited to) excess kilometres, damage, missing equipment or accessories, and lack of servicing and maintenance. We will also tell you your rights relating to any dispute about the vehicle return procedures.