AFCA Issues Caution to Small Businesses on Unregulated Lending Risks

In the 2024-25 financial year, AFCA received 4,648 complaints from small businesses, marking a 4% increase from the previous year. Notably, 21% of these complaints were dismissed because they fell outside AFCA's jurisdiction, primarily due to the lenders involved not being AFCA members. This situation leaves business owners without a formal avenue for dispute resolution when issues arise.

AFCA's lead ombudsman for small business, Suanne Russell, emphasized the importance of verifying a lender's membership status with AFCA before entering into any financial agreements. She stated, "If a small business lender is not a registered member of AFCA, the small business cannot lodge a complaint with us if things go wrong, leaving these business owners vulnerable."

To mitigate potential risks, small business owners are advised to:

• Confirm whether a prospective lender is an AFCA member by checking the AFCA website or directly inquiring with the lender.
• Understand that lenders not required by law to be AFCA members, such as certain asset leasing businesses and private equity lenders, may not offer the same level of consumer protection.
• Be aware that small business credit facilities exceeding $5 million fall outside AFCA's jurisdiction.

By taking these precautions, small businesses can better protect themselves from potential financial disputes and ensure they have access to appropriate channels for resolution if needed.