What APRA does
The Australian Prudential Regulation Authority supervises banks and other authorised deposit-taking institutions, known as ADIs. Its standards aim to keep those institutions financially resilient and able to manage credit risk.
Two standards often mentioned in lending discussions are APS 220 and APS 112. They work at the institution level. They do not create a public checklist that guarantees an individual SME loan.
APS 220: how an ADI manages credit risk
APS 220 requires an ADI to maintain a credit-risk management framework. That includes policies, processes, controls, monitoring and information about its credit exposures. In practice, banks need disciplined methods for deciding, documenting and monitoring credit.
Your bank translates that framework into its own application requirements, serviceability methods, approval authorities and monitoring rules.
APS 112: capital held against credit risk
APS 112 requires applicable ADIs to assign risk weights to credit exposures and hold regulatory capital against them. The current standard came into force on 1 July 2025.
The capital treatment depends on the type and characteristics of an exposure. This is one reason two requests with the same dollar amount may not have the same price, policy or appetite inside a bank.
What APRA does not tell you
- It does not publish one universal SME approval score.
- It does not require every lender to use the same serviceability ratio.
- It does not mean a sound business will be approved by every bank.
- It does not regulate non-bank lenders in the same way as an ADI.
Why lender policies differ
Each lender chooses sectors, loan sizes, security types and risk levels that fit its business model and funding. A bank can set policy above the prudential minimum. A non-bank lender can assess the same request through a different funding and risk model.
A decline therefore needs a specific explanation. It may reflect repayment capacity, documents, security, conduct, loan purpose, policy or appetite. It should not be described as “APRA said no.”
What an SME owner can control
- Explain the purpose, amount and timing.
- Prepare current financial and cash-flow information.
- List existing commitments and contingent liabilities.
- Explain unusual events rather than leaving gaps.
- Ask why a particular lender or structure suits the request.
- Compare the full cost, security and conditions before proceeding.
Primary sources
APRA: APS 220 Credit Risk Management and APS 112 Capital Adequacy: Standardised Approach to Credit Risk. These standards apply to regulated institutions; they are not borrower-specific advice.
Don't let the next application repeat the last one's mistakes.
If you're not sure why a request was knocked back — or what a bank will actually want to see this time — get a clear read on where the business stands first. If the need is already defined, go straight to the finance path.
General information only. Prudential standards and lender policies may change. Check current primary sources and obtain advice for your circumstances.