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The Australian Financial Complaints Authority (AFCA) has recently raised concerns regarding the risks small and medium-sized enterprises (SMEs) face when engaging with unregulated lenders.
This caution comes in response to a notable increase in complaints that AFCA cannot address due to the lenders' non-membership status.
AFCA, which provides free and independent dispute resolution services for financial complaints, has observed a significant uptick in grievances from SMEs dealing with lenders not covered by the Credit Act and who are not members of AFCA. This situation leaves business owners with limited avenues for recourse if disputes arise.
According to AFCA's lead ombudsman for small business, Suanne Russell, "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."
In the financial year 2025, AFCA closed over 2,000 small business complaints related to finance, with 21% of them dismissed because they fell outside AFCA's jurisdiction. A significant portion of these were due to the financial firm not being an AFCA member.
Russell further noted the mounting pressures on small businesses, stating, "For the second year in a row, we have seen a record number of complaints from small businesses. This increase underscores the mounting pressures business owners face, from cash flow and financing difficulties to rising costs and interest rates."
Given these developments, it's imperative for SMEs to exercise due diligence when selecting financial partners. Ensuring that a lender is a registered member of AFCA can provide an added layer of protection and recourse in case of disputes.
For business owners seeking financing options, it's advisable to:
- Verify the lender's membership with AFCA.
- Understand the terms and conditions of the loan agreement thoroughly.
- Seek independent financial advice before committing to any financial product.
By taking these steps, SMEs can better safeguard their interests and navigate the complex landscape of business financing.
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