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Australian Small Business and Family Enterprise Ombudsman

The Australian Small Business and Family Enterprise Ombudsman has welcomed government moves to reduce regulatory barriers to entry for new entrants to the banking system.

Treasury is consulting on proposed changes to the Banking Act, which would allow use of the word “bank” by authorised deposit-taking institutions.

Ombudsman Kate Carnell said this should improve access to finance for small business.

“The power and control of the established banks remains a barrier for small businesses seeking capital to start or expand their operations,” Ms Carnell said.

“Another barrier is a general requirement by the major banks for bricks-and-mortar security.

“Unless a small business is able to meet this requirement, often by using a business owner’s home as security, they have few options to obtain finance.

“Many young people do not own a home or have limited equity in their home, and therefore struggle to borrow to start or expand a business.”

Ms Carnell said removing restrictions on use of the term “bank” should enable more industry participants to compete with established institutions and make it easier for small business operators to borrow funds.

She noted the Australian Prudential Regulatory Authority’s guidelines currently require “banks” to hold at least $50 million in Tier 1 capital.

“APRA will need to review its guidelines for minimum capital requirements if new entrants are to compete equally with the major banks,” Ms Carnell said.

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