Financial counsellors are alarmed about plans to water down responsible lending laws, saying it is another financial crisis in the making.
However small business owners have welcomed the changes, after struggling to get finance during the coronavirus recession.
Treasurer Josh Frydenberg on Friday flagged plans to remove the responsible lending obligations introduced by Labor after the Global Financial Crisis.
Mr Frydenberg said the changes would make it easier for most Australians and small businesses to access finance.
"The flow of credit is going be absolutely critical to our economic recovery," Mr Frydenberg said.
"It's going to be important in the housing sector, it's going to be important in the retail sector, it will be important in the tourism sector.
"But our current regulatory framework, with respect to lending, is not fit for purpose. It's become overly prescriptive, it's become increasingly costly, it's become increasingly complex and responsible lending has become restrictive lending.
"And the Governor of the Reserve Bank has pointed out that banks have become risk adverse to the point that they don't want to make loans they fear may be going bad."
But Carmel Franklin, chief executive of CARE financial counselling and consumer law centre, is "disturbed" by the proposal.
"The Hayne royal commission indicated that it was actually really important to have strong responsible lending regulations in place and it's a huge concern that people might end up down the track in a worse situation than they are now," Ms Franklin said.
She warned the changes could lead to another financial crisis, while trying to jettison Australia out of its current recession.
"That's our concern, that all we're doing is kicking the can down the road. We're basically trying to stimulate the economy now with the really big risk that it causes increased hardship down the track," Ms Franklin said.
But the changes have been deemed vital by Italian Brothers' owner John-Paul Romano.
The Canberra business owner was knocked back for a government-backed loan from the Commonwealth Bank as part of the Coronavirus SME Guarantee Scheme, because he could not provide the paperwork to meet its lending criteria.
While Mr Romano created the business around two years ago, it only began trading on December 31. It meant he did not have the required paper trail to prove he could pay back the loan.
Mr Romano was hopeful the changes would make it easier for him to get credit.
"For a lot of small business owners, cash flow is the biggest problem," Mr Romano said.
"It's not about having the money, it's about when you have the money.
"With the busy weeks you need to purchase more stock and slower weeks you need to purchase less stock and it doesn't always average out and so what that means is that on very short notice, business owners need to tend to raise their credit limit on things like credit cards."
Mr Romano said accessing support this year as a new business had been particularly hard.
"We've had smoke, the fires and the hail and then COVID so it's been quite a tough year," Mr Romano said.
"A lot of businesses weren't eligible for the disaster recovery payments even though the smoke did affect a lot of businesses for a lot of weeks in the ACT.
"Hopefully the relaxing of this lending criteria also assists newer businesses who may not have been around for as long as some of the older businesses with customer bases and finance options and established staff."