The Federal Government is strangling the small end of the commercial finance market with excessive regulation, a leading Sydney-based non-bank commercial loan manager says.David Gouge, managing director of Merchant Mortgages, said business conditions for the people he comes into contact with have been tougher in 2010 compared with 2009."The quality of proposals has definitely slipped this year. Looking at the applications coming through, conditions are tough for small business in NSW."Gouge said Merchant Mortgages' own business, which is commercial lending under $2 million dollars, was, in turn, also being affected by the economic malaise afflicting small business."I would say our business is tracking along at a moderate level, it is certainly not boom time."Clouding the forward outlook for business and commercial lending is excessive government regulation, said Gouge, who is a prominent member of the MFAA, but is not licensed to lend or broker loans under the new national consumer credit code."The Federal Government just doesn't get it. It is all kneejerk responses that don't make long-term sense, like banning exit fees," said Gouge."Banning mortgage exit fees will cut competition and points of difference from the market, and help the big banks."And why shouldn't a lender be able charge a loyal long-term customer less than someone who can leave at any time?""I am knocking back any business that is code-related, and I can tell you the code is limiting small business people severely," said Gouge."Why should a person who has been in business for a lifetime be limited in the way they finance a residential investment property?"North Sydney-based Think Tank is a four year old non-bank commercial lender in the up to $5 million segment that has also not yet become licensed, so is not ready to do credit code loans."Think Tank is definitely open for business lending. We have been back in the market strongly and looking to grow lending again really since early this year," said managing director Peter Kearns."We are looking to build our lending and presence in the market. We have no volume pressure or constraints."We are registered with ASIC and have applied for a credit licence, but have not yet been licensed. We don't have the credit code documentation... [but will be] working through all that in the next few months," said Kearns.Bronko Kozel is a partner at Quadrant FS, in Wollongong, and is a specialist in commercial finance. His is also feeling the impact of government regulation."Absolutely, the new consumer credit regulations are already impacting on the commercial deals we are doing now," said Kozel."We have to pull apart every deal now and there is lot more scrutiny on the personal side. Not just the business being scrutinised, but the people, and can they sustain the loan if business goes bad?"Nobody objects to more scrutiny of deals - we welcome the opportunity to pull apart deals to determine if they viable commercially," said Kozel."But, yes, sometimes these new layers of verification are, potentially, getting in the way of some very good-looking commercial deals."