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Media Release

Greater certainty for small business loans

Greater certainty for small business loans

Commonwealth Bank simplifies business lending standards following Carnell report

Commonwealth Bank is making a range of changes to simplify small business lending contracts and provide greater certainty to customers.

The changes address a key concern raised in the Small Business and Family Enterprise Ombudsman Kate Carnell’s Small Business Loans Inquiry report about financial indicator covenants.

Commonwealth Bank Business and Private Banking Group Executive Adam Bennett said: “We are simplifying our small business loan terms and conditions to make it easier for our customers. For almost all of our small business loans, financial indicator covenants will no longer be included in loan contracts and therefore will no longer be a possible cause of default.

“Even though we very rarely used these covenants as a reason to foreclose a loan, this means that we will be removing all references to them in our small business loan contracts where our exposure to the customer is below a value of $3 million. We are doing this for all new and existing qualifying customers to provide greater transparency and certainty for small business.”

Existing customers will be advised of the removal of these covenants to their loan contracts while future loan contracts will be simplified to make it easier for new customers to understand the loan contract.

This will benefit 95% of our small business customers.

“This means customers will have more certainty and control so they can avoid defaulting on their small business loans,” Mr Bennett said.

Commonwealth Bank is implementing changes in response to the Ombudsman’s other recommendations and continues to work with industry on those that require a coordinated response. 



The financial covenant or condition of most concern to the Carnell Inquiry (Small Business and Family Enterprise Ombudsman) was the loan to valuation ratio (LVR). The removal of this and others such as the interest cover ratio in future and existing qualifying loan contracts means those ratios or conditions cannot be considered as a default cause. 

Other clauses to be removed include those known as ‘material adverse change’ that entitle the bank to call a default for an unspecific negative change in the circumstances of the business. As has been industry practice, default events will continue to relate to the operation of the business, such as becoming insolvent, losing an operating licence, or not paying back the loan. Other details:

  • For existing and new small business customers with total credit exposure of a business group under $3 million, Commonwealth Bank will remove all financial indicator covenants  - e.g. loan to value ratios and interest cover ratios - other than for specialised finance transactions such as margin lending, foreign currency loans, SMSF financing and property development.
  • Specific events of non-monetary default that entitle enforcement will be limited to the following circumstances within the customer’s control, namely:
    • Misrepresentation, illegality or use of the loan for non-approved purpose;
    • Change in beneficial control of company except as permitted;
    • Insolvency, bankruptcy, administration, or other creditor enforcement;
    • Loss of licence or permit to conduct business;
    • Dealing with loan security property without consent such as through disposal of the security;
    • Failure to provide proper accounts or to maintain insurance.