Revised credit rules for small firms

BANKS WILL be required to provide details of fees and charges that apply to small and medium sized enterprises (SMEs) that run into financial difficulties, under a revised code of conduct published by the Central Bank.

It is one of a number of changes contained in the revised SME code published yesterday, which focuses on banks’ obligations when dealing with enterprises facing financial difficulty.

A full review of the original code for business lending – first published in March 2009 following lobbying by the SME sector – will be undertaken next year.

Among the provisions included in the revised code are the requirement that banks inform SMEs of what information is required to assess whether they are entitled for an alternative repayment scheme.

When a lender completes this assessment, it must inform the SME of the decision within 15 days, and have systems in place to allow the customer to appeal the decision. In addition, if a firm is concerned about meeting repayments, the lender must offer the customer an immediate meeting to assess if an alternative repayment arrangement can be arranged.

The revised code will come into effect in January and banks are legally required to comply with the code.

Mark Fielding, of small business representative group Isme, welcomed the publication of the code, which he said should result in banks dealing more efficiently with businesses that find themselves in financial difficulty. In particular he welcomed the 15-day turnaround time.

Other provisions contained in the code are that lenders must consider each application for credit on its own merit and inform borrowers how long the credit application process is likely to take.

The code, which does not apply to credit unions, covers a range of lending arrangements for businesses including overdrafts, term loans, loans, leasing, hire purchase and invoice discounting. The code applies to all existing arrears cases.

The director of Consumer Protection at the Central Bank, Bernard Sheridan, said the revised requirements introduce a clear framework for lenders to deal with SMEs in or facing financial difficulties.

“The framework has been designed to assist SMEs and lenders to work together to address existing or emerging arrears situations and financial difficulties.”