Quick answer
Often, yes. Australia's unfair contract terms law can cover a business loan where your business had fewer than 100 employees or turnover under $10m, the contract was a standard form, and the upfront price was $5m or less. Unfair terms are void and lenders can be fined. The law doesn't reach the upfront price itself, such as the principal and establishment fee, but default fees and one-sided variation clauses can be challenged.
Key points
- Small businesses with fewer than 100 employees or turnover under $10m can be protected.
- The loan contract must be a standard form contract, and for financial products the upfront price can't exceed $5m.
- Principal and establishment fees are part of the upfront price and aren't reviewable; default and late fees can be.
- An unfair term is void, the rest of the contract can continue, and penalties can apply to the lender.
- Read the default, variation and early repayment clauses before you sign, not after a problem arises.
Often, yes. If your business had fewer than 100 employees or turnover under $10m, and your loan is a standard form contract with an upfront price of $5m or less, Australia’s unfair contract terms law can apply to it. An unfair term is void and the lender can face penalties. What the law won’t do is let you renegotiate the price you agreed to borrow at.
Most private lending runs on standard documents. That’s efficient: a lender can’t write a fresh contract for every $150k loan. But it also means the clauses were drafted by one side. The unfair contract terms law exists for exactly that imbalance, and it’s worth understanding before you sign, not after something goes wrong.
Who does the law protect?
ASIC’s guide to unfair contract term protections for small businesses sets out the tests for financial products, which include business loans. In summary:
- Your size. Your business qualifies if, at signing, its headcount was under 100 or its turnover for the previous income year was below $10m. Regular casuals are included in the headcount, and part-time staff are counted pro rata.
- How the contract was put together. The lender drafted it and you had little real say. Once you claim it’s standard form, it’s on the lender to prove otherwise.
- How big the loan is. The upfront price has to be $5m or under, with interest left out of that calculation.
Most owner-operated businesses borrowing against property fit comfortably inside those lines. Property-secured business loans run from $20k to $5m, so the typical private business loan sits within the protected range.
Which parts of a loan contract can be challenged?
This is the part owners most often misunderstand. The law isn’t a tool for arguing the price down. Terms that set the “upfront price” are outside it. ASIC’s guidance explains that the upfront price excludes fees or charges for something that “may or may not happen during the contract”.
| Term | Reviewable for unfairness? | Why |
|---|---|---|
| Loan amount (principal) | No | Part of the upfront price |
| Establishment fee | No | Part of the upfront price |
| Default or late fees | Yes | Charged for something that may or may not happen |
| Lender’s right to change terms on short notice | Yes | Classic example of a one-sided term |
| Early repayment and exit costs | Depends on how they work | Ask how the clause is triggered and calculated |
| Events of default (what counts as breaching the loan) | Yes, if one-sided | Assessed like any other non-price term |
That distinction is why reading the offer carefully matters. The price is yours to compare and accept or decline; the rest of the contract has to be fair.
What does ASIC say an unfair term might look like?
ASIC gives practical examples on the same page. Paraphrased, they include:
- A punishing fee for one late payment. Picture a borrower with a clean repayment record and solid security who misses a single instalment and is hit with a charge well beyond any real loss to the lender. That’s the kind of fee likely to fail.
- Change-at-will clauses. Wording that lets the lender rewrite the deal however it likes with only days of warning, and no fair way for you to leave without cost.
- Paying regardless. A lease that locks you into full-term payments even when the equipment is faulty and the faults are the lessor’s to fix.
The common thread: a term that tilts the risk sharply one way, beyond what the lender reasonably needs to protect its position.
Want someone to walk through a private loan offer with you in plain English? Start a short enquiry and a real person will call.
Does it matter that the lender isn’t a bank?
Not for this purpose. ASIC’s guidance is written for financial products and services generally, and a business loan is a financial product whether it comes from a major bank or a non-bank private lender. The start date for financial products is 12 November 2016, and a contract signed, renewed or varied from that day is in scope. So an older loan that’s been rolled over or amended since can still be caught.
What does differ is the shape of the contract. Private loans secured by a second mortgage or caveat tend to be shorter, with more weight on the end date and what happens if it’s missed. That puts the default, extension and exit clauses at the centre of any review. The secured business loans page explains how the security positions work.
What happens if a term is unfair?
Once a term is found to be unfair, it has no legal effect, and the lender can’t rely on it. You keep the loan, because the remaining contract stands as long as it still works without the struck-out clause. Since the law was strengthened, lenders that propose, apply or rely on unfair terms can be fined, and each unfair term can attract a separate penalty. Courts can also vary terms, order refunds or grant injunctions.
How should you read a private loan offer with this in mind?
You don’t need to be a lawyer to spot the clauses that matter most. Before signing, find and read:
- Default fees and default interest. What triggers them, how much they are and when they stop.
- Events of default. Is it only non-payment, or also things like a drop in property value or a missed report?
- Variation clauses. Can the lender change fees or terms during the loan, and with how much notice?
- Early repayment. Is there a minimum interest period or an exit fee?
- Term and extension. What happens if the loan isn’t repaid by the end date?
business.gov.au’s guide to applying for a business loan makes the same basic point: read each loan’s terms and conditions carefully and compare upfront and ongoing charges. If you already have a loan with terms you can no longer live with, a business debt refinance into a cleaner contract is sometimes the simpler fix. And because a property-secured loan puts real assets on the line, it’s worth having your own solicitor look over the documents, particularly anything you don’t understand.
Where can a small business complain?
Work through it in order. Start by raising it with the lender through its complaints process. If you’re not satisfied, take it to the Australian Financial Complaints Authority. AFCA’s small business page says its service is free, defines a small business as having fewer than 100 employees, and can’t consider a complaint about a small business credit facility over $5m. Beyond that, a court can declare a term unfair. ASIC also accepts reports of misconduct, though it generally acts where there’s a wider public interest.
Illustrative example: reading before signing
Illustrative example. A landscaping company with 14 staff is offered a $180k private loan secured by a second mortgage over the director’s home, to buy a skid steer and fund a large council contract. The offer looks fine on price.
Before signing, the director reads the default section. One clause would charge a large flat fee for any single late instalment, and another would let the lender change any fee on five days’ notice. She raises both. The lender replaces the flat fee with a modest charge tied to its actual collection costs and removes the variation clause. Nothing about the price changes, but the contract she signs is one she understands and can live with. Had she signed first, the protections would still exist, but sorting it out after the fact is always harder.
A fair contract starts with a good match
The best protection isn’t a dispute process; it’s borrowing from a lender whose terms are clear from the start, for an amount and a term that fit your plan. That’s where we come in. The how it works page explains our process step by step.
Enquiring takes about 60 seconds and there’s no credit check when you first enquire. We don’t fire your details at a pile of lenders, so you won’t be chased by people you’ve never met. A real person looks at your property, purpose and exit plan, then calls to talk options through, including what the documents will ask of you. Please complete the form accurately, especially your business size and what’s owed on the property, so we match you to the right lender first time.
Frequently asked questions
What counts as a standard form contract?
Think of a loan document the lender drafted and handed over with little room to change it: sign it as is or walk away. Tweaking a clause or two doesn't automatically take it out of that category. And the burden sits with the lender: once a small business claims the contract is standard form, the lender has to prove it isn't.
Can I challenge the interest or establishment fee on my loan as unfair?
Generally not under this law. Terms that set the upfront price, including the principal and establishment fees, aren't covered. The protection is aimed at other terms, such as fees for things that may or may not happen during the loan.
Is a high default fee automatically unfair?
Not automatically, but ASIC gives an example of a large default fee for a single missed instalment, on a loan where the borrower usually pays on time and the loan is secured, as likely to be unfair if it goes beyond what's needed to protect the lender.
What happens to my loan if a term is found unfair?
That clause drops out and can't be enforced, while the loan itself usually carries on without it. A court has a range of other orders available, and a lender that includes, uses or leans on such a clause can be penalised.
Where do I complain if I think a loan term is unfair?
Start with the lender's internal complaints process. ASIC also points to the Australian Financial Complaints Authority, which is free for small businesses within its rules, and to the courts. You can report concerns to ASIC as well.
Does the law cover loans over $5m?
For financial products and services, ASIC says the upfront price must not exceed $5m for the small business protections to apply. Larger facilities fall outside that part of the law.