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FCA to investigate use of personal guarantees in certain small business lending

Summary of Development

The Financial Conduct Authority has today committed to investigate the use of personal guarantees by lenders to support loans to certain small businesses. The steps come in response to a super complaint from the Federation of Small Businesses (FSB).

The FSB has raised concerns that a growing demand for personal guarantees by lenders has a detrimental impact on small businesses, which they believe dissuades them from borrowing funds to grow. It has particular concerns about small limited companies. The FCA’s remit, which is set by Parliament, does not include lending to limited companies. However, the work announced by the FCA today reflects its commitment to do what it can to support small businesses within its defined remit.

If the FCA’s work identifies relevant information, it will share it with appropriate government departments – in particular the Treasury as it considers reforming the Consumer Credit Act.

The FCA will:

  • Collect data (from April-June 2024) to understand the number of personal guarantees for sole traders and small partnerships borrowing less than £25,000.
  • Review a sample of firms’ policies and procedures to understand when personal guarantees are required for loans that come under the FCA’s regulation.
  • Work with the Financial Ombudsman Service (FOS) to monitor the levels of complaints about this issue.
  • Consider whether lenders need further guidance on applying the FCA’s rules and guidance within the Consumer Credit Sourcebook to situations where a personal guarantee is in place. If required, the FCA will consult on and publish guidance in the normal manner.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said 'Small businesses are vital to the UK economy, and it is important that they can access lending to help them grow – so we welcome the FSB raising these issues. We will play our part to better understand whether lenders’ practices are causing unnecessary barriers to growth and, if necessary, act to remove any within our remit. That remit, set by Parliament, is limited when it comes to small businesses. If we identify issues outside our remit, we will make these public so that Parliament and policy makers can consider whether greater protection should be available to small businesses.'

This work might also be of value to Parliament and its relevant committees as and when they look at business banking and related issues.