"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."
- Sheldon Mills, executive director of consumers and competition at the FCA
The FCA has 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) in December 2023.
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 says its remit, which is set by Parliament, does not include lending to limited companies, but reiterated 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 these with appropriate government departments – in particular the Treasury as it considers reforming the Consumer Credit Act.
The FCA has now committed to collect data (from April-June 2024) 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 firms’ policies and procedures to understand when personal guarantees are required for loans that come under the FCA’s regulation and will work with the Financial Ombudsman Service (FOS) to monitor the levels of complaints about this issue.
Additionally, the regulator will 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.
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."
Simon Goldie, director of business finance at the FLA, added: “We welcome the FCA’s measured approach as they seek more information on the operation of personal guarantees in the market. We will work closely with them to ensure that the context of these guarantees is understood, not least the fact that our latest research suggested an enforcement rate of only 2% in 2023.”
