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Help SMEs ‘trapped’ in bad loans, accountants told

Business

Tax professionals are well placed to help businesses caught in unsuitable financial arrangements.

By Malavika Santhebennur3 minute read

Dr Craig Latham, Deputy Australian Small Business and Family Enterprise Ombudsman (ASBFEO), said his office received over 7,000 requests for assistance each year with some of the most difficult cases involving SMEs “trapped” in arrangements that no longer work.

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These included arrangements for business equipment like multifunction printers where equipment was provided alongside a financial agreement with a third-party financier.

“Small businesses are often unaware that they are actually entering both an equipment lease/purchase and a finance agreement,” Dr Latham told Accountants Daily.

“We have seen these creating problems for small businesses when equipment becomes defunct or is otherwise no longer needed. The problem for businesses is that the obligations under the financing contract persist – and these can be very onerous.”

Dr Latham said avoiding these types of arrangements altogether would be the best solution and accountants or other trusted advisers could help.

“That’s because once entered into, they are difficult to renegotiate, and raise issues like hardship,” he said.

Where accountants have SME clients with arrangements like this, Dr Latham suggested they tackle it by refinancing elsewhere and “pay out the contract”.

The benefit of this approach was dependent on the terms of the contract (which is commonly one-sided) and the willingness of the finance company to terminate the contract.

Dr Latham spoke to Accountants Daily ahead of the Accountants Daily Finance Day on 16 June 2022 in Sydney, where a range of speakers will unpack the potential of SME lending, and how accountants could become more actively involved in assisting their SME clients with meeting their funding needs.

In this jam-packed face-to-face free event, accountants will gain key insights into lender expectations, learn how to navigate lender assessments and manage client expectations to generate successful lending outcomes and ensure clients are finance-fit and loan-ready.

During his session at the event, Dr Latham will provide insights into the development of the Business Funding Guide and how accountants could harness it and proactively manage relationships to help their clients make optimal decisions for their business.

Use financiers who are AFCA members, accountants warned

According to Dr Latham, ASBFEO has also fielded inquiries from small businesses with high interest and penalty financial arrangements with financiers that are not members of the Australian Financial Complaints Authority (AFCA).

While there are established channels via AFCA to address disputes where a financier is a member of AFCA, these are not available for family and small businesses that enter into financial arrangements with non-AFCA members.

“The contracts will commonly fail to provide dispute resolution mechanisms outside the formal court system,” he said.

As such, Dr Latham urged accountants to ensure that their SME clients only secure finance from firms that are AFCA members.

“This means that should an issue arise, there is an established process to help resolve it and that help is backed by AFCA working with the parties,” he said. 

“We are keenly interested in more commercial finance companies stepping up and becoming members of ACFA. From 1 July, AFCA introduces lower fees that cover the cost of five disputes annually (should they arise).

“There really is no excuse now for commercial finance companies failing to be members of AFCA.”

To hear more from Dr Craig Latham about how accountants as trusted advisers can take advantage of the Business Funding Guide and proactively manage SME client relationships, come along to the Accountants Daily Finance Day on 16 June 2022 in Sydney.

The event is FREE so click here to register now to secure your place and make sure you don’t miss out!

For more information about the conference, including agenda and speakers, click here.

Help SMEs ‘trapped’ in bad loans, accountants told
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