On 9 December 2024, the Financial Conduct Authority (FCA) published a new webpage setting out information on its follow-up work to the super-complaint by the Federation of Small Businesses (FSB) on requiring personal guarantees for business loans.

Background

The FSB submitted a super-complaint to the FCA in December 2023, which centred on the requirement for personal guarantees (PGs) to support lending to small and medium-sized enterprises (SMEs).

The FSB’s complaint recognised that most SME lending (for example, any lending to limited companies, limited liability partnerships and partnerships consisting of more than 3 persons) sits outside the FCA’s remit. The FCA notes that it is expected (and confirmed by industry intelligence) that the requirement for PGs to support lending is more common in unregulated business lending, particularly to limited companies.

In the FCA’s response to the super-complaint, it committed to collecting data from a representative group of lender firms, to help it understand the number of PGs in place as a proportion of total SME lending. 

The FCA’s follow-up work

The FCA has collected the data it said it would collect, as well as asking questions about firms’ policies and procedures for PGs taken to support lending that falls within its remit.

It found that, within the very limited part of the SME lending market that it regulates, there was no evidence of harm that would warrant further supervisory activity being taken or additional guidance being developed relating to the treatment of guarantors.

The FCA does flag, however, that its questioning of firms’ policies and practices has identified practices that firms may want to adopt to address some of FSB’s concerns. Those include:

  • Providing post-contractual information to guarantors, to improve guarantors’ understanding of their ongoing liability and potentially help prevent some of the misunderstandings regarding liability that appear to lead to complaints to firms and to the Financial Ombudsman.
  • Setting a limit on the level of borrowing below which the firm will not take a PG (i.e. a de minimis level). The FCA suggests that this approach may help to address FSB’s concern that guarantees are requested for very small amounts of debt.

The FCA confirms that it has shared its findings with HM Treasury, given the Government’s interest in business lending policy.