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20 July 2020

Small business borrowers urged to beware before taking out a loan

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has urged small business owners to do their homework, before taking out a loan.

The warning comes as the Ombudsman’s office issued its second ever notice of refusal to mediate under section 74 of the Act, against lender Prudent Capital Pty Ltd.

Ms Carnell says her office received a request for assistance from a small business in dispute about its loan with Prudent Capital, however Prudent Capital refused to engage in mediation and proceeded to take direct action against the small business.

“I am extremely disappointed by the refusal of Prudent Capital to engage in mediation and seek to resolve the dispute in a fair way and I continue to encourage Prudent Capital to reconsider its refusal,” Ms Carnell says.

“The dispute involved allegations that Prudent Capital applied substantial interest and penalties to the loan that increased through its own delays.

“It was also alleged Prudent Capital acted in ways that obstructed the small business from refinancing.

“This serves as a timely and critical reminder to small businesses to ensure the lender is an AFCA member before taking out a loan.

“Small business borrowers can only access a free and independent dispute resolution process for their financial complaints if their lender is an AFCA member.

“Not all lenders are AFCA members – in fact many are not – and small businesses need to be aware of the risks.

“Access to funding continues to be a major issue for small businesses. It’s crucial they make the right choices when it comes to managing their finances.

“I would encourage small businesses to go to their trusted accredited financial adviser before making any big decisions.”