Financial Conduct Authority to investigate personal guarantees for small business loans

Financial Conduct Authority to investigate personal guarantees for small business loans
Dan Martin
Dan MartinDan Martin Content & Events

Posted: Wed 13th Mar 2024

The Financial Conduct Authority (FCA) has announced an investigation into the use of personal guarantees by lenders to support loans provided to small businesses.

The news follows a 'super complaint' by the Federation of Small Businesses which said the requirement for personal guarantees has a detrimental impact on small businesses accessing funding to grow and forces founders to put their homes or other assets on the line.

The financial regulator's probe will only focus on sole traders and smaller partnerships because limited companies are outside of its remit.

The FCA said it will collect data to gauge how common personal guarantees are for small firms borrowing less than £25,000, and review lenders' procedures to understand when personal guarantees are required.

The FCA will also work with the Financial Ombudsman Service to monitor levels of complaints about this issue, and consider whether lenders need further guidance on how to apply the FCA's rules and guidance.

Sheldon Mills, FCA executive director of consumers and competition, told the Financial Times:

"Small businesses are vital to the UK economy, and it is important that they can access lending to help them grow. 

"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

"If we identify issues outside our remit, we will make these public so that parliament and policymakers can consider whether greater protection should be available to small businesses."

Daniel Woolf, Enterprise Nation's head of policy and government relations, said:

"Stringent requirements for personal guarantees from banks hinders the growth of small businesses.

"Our members have told us that even if their businesses can demonstrate their profitability, banks are still demanding personal guarantees before committing to a loan. This creates a Catch-22 situation for small businesses: they need the loan to grow, but they are unwilling to put their personal assets at risk.

"According to Purbeck Personal Guarantee Insurance, 45% of businesses back off from a finance deal if they find out there is a personal guarantee attached. This is unsurprising, given the high personal costs associated with such guarantees.

"The government should encourage banks to reduce their reliance on personal guarantees and provide more flexible lending options for small businesses.

"Requiring personal guarantees when they aren't necessary is not only unfair to small businesses, but it is also a barrier to economic growth. The government must act now to address this issue and ensure that small businesses have the financing they need to thrive."

Dan Martin
Dan MartinDan Martin Content & Events
I'm a freelance journalist and event host who helps small businesses and the organisations that support them. I'm also Enterprise Nation's news reporter and Bristol Local Leader. I have 20 years of experience as a small business journalist having interviewed hundreds of entrepreneurs from famous names like Sir Richard Branson and Deborah Meaden to the founders behind brand new start-ups. I've worked for a range of leading small business publications and support groups, most recently as head of content at Enterprise Nation where I was responsible for the prolific output of content on the company's blog and social media. I now freelance for Enterprise Nation as the website's news reporter and as the host of the Small Business sessions podcast. I'm based in Bristol where I run and host regular events with the local small business community in my role as Enterprise Nation's Local Leader for Bristol. I also have strong connections with other major business organisations in the south west region. In total, I've hosted over 100 events including conferences with an audience of hundreds for international brands like Xero and Facebook and live web chats from inside 10 Downing Street. With my partner, I co-run Lifestyle District, a lifestyle blog focused on culture, art, theatre and photography.

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