The Financial Ombudsman Service is proposing to increase the cap on the size of small business loans it can deal with from A$2 million currently to $10 million and to increase claim limits from $500,000 to $2 million.FOS has issued a consultation paper detailing the proposed expansion of is small business jurisdiction.In April the Government said it saw merit in FOS extending its jurisdiction and it asked FOS to work with the Australian Securities and Investments Commission on a proposal.This work will ultimately be incorporated into the Government's wider review of the financial system's external dispute resolution and complaints framework, which was launched earlier this month.Currently FOS can only deal with businesses that have fewer than 20 employees (100 employees if the business is a manufacturer) and it has a credit facility limit of $2 million. FOS cannot consider a debt related dispute by a small business wen the credit facility is above this amount.The claim limit for small business credit disputes is $500,000.FOS has proposed that the definition of a small business would not change but that the credit facility limit be increased to $10 million and the claim limit increased to $2 million.Debt recovery proceedings against a small business would be prohibited while a dispute was being considered on credit facilities up to $10 million.The consultation paper says: "The proposed $10 million credit facility limit is based on our analysis of debt-related small business disputes received by FOS. This showed a clustering of such disputes around the $8 million to $10 million range."FOS is open to staggering the change in the compensation cap, starting with $1 million, for example, with a review after a year of operation.FOS said it would need to set up a specialist team because of the complexity of dealing with larger business loans. It said it would be ready to start operating with a specialist small business unit by the middle of next year.It wants to extend its power to compel participation in dispute resolution proceedings to  "third parties", such as the directors of a company, partners of a partnership, trustees and office bearers of an association. "At present we cannot compel a third party - someone who is not a party to the dispute - to participate in our process. This limits our ability to consider a dispute which affects the rights and obligations of not only the applicant but also a relevant third party," FOS said.FOS has also proposed that its power to vary regulated (consumer) contracts in cases of financial hardship be extended to unregulated contracts.FOS has called for submissions by September 23.