FCA investigates ‘growing demand’ for personal guarantees in small business lending

The UK’s financial watchdog has plans to scrutinise the use of personal guarantees by lenders to support loans for some small businesses.

The investigation comes after the Federation of Small Businesses (FSB) raised concerns that a growing demand for personal guarantees by banks has had a “detrimental impact” on small businesses and puts them off borrowing funds to grow.

The organisation said that it had particular concerns about small limited companies.

While the Financial Conduct Authority’s (FCA) remit does not include lending to limited companies, it said that it is committed to doing what it can to support small businesses within the remit it covers.

The organisation said that if it identifies issues outside of its remit, it will make these public so that parliament and policy makers can decided whether greater protection is necessary for small businesses.

"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," said Sheldon Mills, executive director of consumers and competition at the FCA. "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."

The regulator plans to collect data between April and June to understand the number of personal guarantees in place for sole traders and small partnerships borrowing less than £25,000.

It will also review a sample of firm policies and procedures to identify under which circumstances personal guarantees are needed for loans.

Additionally, the FCA said that it will work along the Financial Ombudsman Service to monitor the levels of complaints about the issue.



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