The familiar rules and relationships around lending have shifted. Today, tenants are negotiating with landlords, and businesses with their bank managers. The economic impacts of COVID-19 are turning our understanding of accepted credit terms and timeframes on their head - in both practical and moral terms.

Recent data from the Australian Bureau of Statistics survey on Business Impacts of COVID-19 showed that 72 per cent of Australian businesses reported an expected decrease in cash flow over the coming two months.

That is a major concern because small businesses provide 35 per cent of Australia's gross domestic product and employ 44 per cent of the workforce. They were already experiencing a soft economy, with a reported 10 per cent decline in January and February in the number small businesses registering for an ABN. Since COVID-19 hit Australia in February, new business registrations have fallen 43 per cent below the three-year average.

When this economic situation shifts toward recovery, we are likely to need new rules of engagement between small business and lenders. Who gets to borrow? What level of default will be tolerated? What security is sufficient, particularly for those with relatively little equity? Can repayments be delayed for years?

Economic recovery in Australia requires a serious rethink on the internal workings and culture of the lending sector, as well as the overarching regulations.

Until now, the risk of non-payment of a loan could be assessed based on formulas informed by history. It is imperative that these formulas are revisited to reflect the 'new normal'. There needs to be a much greater appetite for risk in light of both a decline in the equity in the hands of many business operators and the uncertainty of the marketplace.

Lending is already a risk-based industry, and it seems destined to become more risk-aware in today's fluid environment. Exacerbating factors include social distancing that can result in less of the face-to-face interaction that is essential to trust building. Changes of internal processes in a lending organisation can lead to shifts in lines of authority, which can in turn generate more conservative outcomes.

Any tightening within bank culture is likely to be felt most among those who have historically noted challenges in obtaining credit. These groups generally include small business owners and entrepreneurs, businesses operated by women, businesses operated by international migrants and businesses in regional areas.

The hurdles faced by small businesses seeking to borrow during the eventual upswing in the economy as COVID-19 lockdowns end can be as daunting as they have been during the 'bust'. That is due to the rapidly changing context and associated uncertainty.

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An example of the impact of such uncertainty occurred in Queensland's Darling Downs during the coal seam gas construction period from 2011 to 2014. Landholders receiving a conduct and compensation agreement from a gas company could see an additional income stream of tens or hundreds of thousands of dollars per year guaranteed for the 20-30 year life of the gas wells on their property. This cash flow represented an opportunity to expand their enterprises. Banks responded by offering a few points off loan terms but no access to additional capital. As a result, land sales did not occur, and farms did not grow. Landholders voiced frustration with policies apparently formulated in Brisbane, Sydney or Melbourne that did not seem to take into account their local opportunities.

Decisions made in capital cities, predetermined formulas for assessing risk and timeframes for repayment may no longer be appropriate. They can result in a lack of capital for capable business operators whose operations are poised for growth.

That would include small business owners, businesses operated by women and international migrants, and businesses in regional areas.

We must rethink credit and repayment timeframes to ensure that there is access to the resources needed to help kick-start Australia's economy.

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