Banking News

UK Small Businesses Turn to FCA Over Excessive Personal Guarantees

(11 December 2023 - United Kingdom) The UK’s small business lobby has asked the country’s top financial regulator to intervene over “harsh” banking practices that it says are forcing small businesses to put their homes at risk unnecessarily.

The Federation of Small Businesses told the Financial Times it had filed a “super-complaint” — the first to be made to the Financial Conduct Authority — focused on “banks that excessively demand personal guarantees for business loans”. 

A super-complaint is a fast-track procedure allowing designated consumer groups to raise issues they believe are significantly damaging to customers. The FCA has 90 days to set out how it will address the complaint. 

The move threatens to open a new conflict between banks and small businesses, many of which were sold unsuitable interest rate swaps in the run-up to the 2008-09 financial crisis in a major mis-selling scandal.

Banks frequently require personal guarantees from directors of small businesses to ensure repayment. 

The FSB said banks were too quick to demand the guarantees, which it said were a “straitjacket” on business growth, forcing entrepreneurs to put their homes or other assets on the line when taking out finance. 

Guarantees put directors’ personal assets at risk even if their business has limited liability. 

Martin McTague, FSB national chair, said these guarantees could be “perfectly reasonable” where a business did not have many assets of its own. But proportionality was needed, he added, particularly where the sums were small for banks but potentially transformational for small business owners. 

The FSB called on the FCA to review the extent of banks’ practice of requiring the guarantees and to consider asking ministers to expand the regulator’s remit so that it can cover personal guarantees of business loans.

Business loans to limited companies or for more than £25,000 are generally outside the FCA’s regulatory “perimeter”, set by the government and parliament. 

The FSB said requiring personal guarantees could stifle enterprise by discouraging businesses from borrowing to fuel growth, instead making them “over-cautious”.