Is the loan covered?
For a contract about a financial product or service, which takes in a business loan, INFO 211 sets out these conditions, as at October 2026:
- A small business is a party. INFO 211 counts a business as small if it “employs fewer than 100 people at the time the contract is signed”, counting regular casuals and part-timers as a fraction of full-time, or one with a turnover of less than $10,000,000 for the last income year.
- The upfront price is within the cap. For financial products or services, the upfront price payable “does not exceed $5,000,000”. Interest is left out when that test is applied.
- It is a standard form contract. One prepared by the lender without negotiation, offered “largely on a ‘take it or leave it’ basis”. Minor negotiated changes, or choosing among pre-written options, do not stop it being one, and if the small business says it is standard form, it is presumed to be unless shown otherwise.
- The date. It was entered into or renewed on or after 12 November 2016, or the term was varied on or after that date.
An individually negotiated contract is not covered.
What makes a term unfair
INFO 211 lists three things a court looks at:
“A term in a standard form small business contract is ‘unfair’ if it:
would cause a significant imbalance in the parties’ rights and obligations arising under the contract
is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, or
would cause detriment (financial or otherwise) to a small business if it were to be applied or relied on.”
ASIC, INFO 211
The court also weighs transparency: whether the term is legible, in reasonably plain language, clearly presented and readily available. A term hidden in fine print may not be transparent, though a transparent term can still be unfair. And it reads the term in the context of the whole contract, so the same words can be unfair in one contract and not another.
What the law leaves alone
Terms that set the upfront price, or define the main subject matter, cannot be challenged as unfair. For a business loan, INFO 211 says the upfront price takes in the amount borrowed, the interest rate and any establishment fee disclosed at the start, but not a default fee, because that depends on a default happening. So the interest rate on a loan is outside the law’s reach, while a late fee or other contingent charge is inside it.
Clause types ASIC raised with lenders
After the law was extended to small business contracts on 12 November 2016, ASIC and the Australian Small Business and Family Enterprise Ombudsman reviewed the small business loan contracts of the big four banks. ASIC’s Report 565 (March 2018) records the clause types that concerned them and the changes the banks made. The report was written when the law covered fewer contracts: it describes a small business as one with fewer than 20 employees, against INFO 211’s 100 today. Its account of the clause types still reads as a checklist for any loan contract.
| Clause type | What ASIC said |
|---|---|
| Entire agreement | Clauses that stop a lender being held responsible for what was said outside the written contract “are likely to be unfair”. |
| Broad indemnity | Making a borrower cover losses caused by the lender’s own “fraud, negligence or wilful misconduct”, or that of its staff, agents or a receiver it appoints, is “likely to be unfair”. |
| Material adverse change | A default for any unspecified “material adverse change” is likely to be unfair: it left the borrower without “any clarity about what types of change could result in a default”. |
| Other non-payment defaults | Even a listed event can be applied out of proportion. ASIC’s example is a default called over “an incorrect date of birth”. It said lenders should allow a reasonable time to fix a breach and act only on a material risk. |
| Financial covenants | Calling a default for breaching a covenant such as a loan-to-valuation ratio “could be unfair” where the breach is not a material credit risk. |
| Changing the contract alone | A broad power to vary the contract without the borrower’s agreement has “a high risk of being unfair”. |
Two of ASIC’s examples
A default fee. In INFO 211, a business borrows $20,000 secured over the owner’s home and must pay a $5,000 fee if it defaults. It misses one instalment it means to pay early the next month, and the lender demands the fee. ASIC’s view is that it “is likely to be unfair if it imposes a cost on Jose’s business that exceeds the amount required to protect the lender from loss.”
Five days to accept a change. A loan lets the lender vary any term in unspecified ways on five days’ written notice, even to raise fees steeply. ASIC says this may be unfair because the business has no real chance to leave without penalty: refinancing or selling assets to repay “is likely to take more than five days”.
If a court finds a term unfair, and the steps before that
The term is void. Separately, a fine can be imposed on a provider that proposes, applies or relies on an unfair term, and each such term in a contract can attract its own fine. A court can also vary the contract, refuse to enforce terms, order refunds, and stop the same term being used again.
INFO 211 sets out the steps open to a small business:
- Complain to the lender. The lender deals with it through its internal dispute resolution process. The Australian Small Business and Family Enterprise Ombudsman offers dispute resolution support, and an industry code, such as the Banking Code of Practice, may add protections of its own.
- Complain to AFCA. If the lender’s answer does not settle it, AFCA can vary, rectify or set aside a contract. For most complaints its decision binds the lender if the business accepts it, and a business that does not accept it keeps its right to go to court. More in roll 06.
- Ask a court. A small business can apply for a declaration that the term is unfair; if it succeeds, the term is void.
ASIC can also go to court about a term, and takes reports of misconduct online, though it says it does not generally act for a single small business unless the matter is in the wider public interest.