Lenders urged to improve standards around personal guarantees
Lenders have been urged to improve “processes and controls” in relation to personal guarantees.
The Lending Standards Board (LSB) chief executive Emma Lovell made the comments in response to a Treasury Committee report, published today, on access to banking services for smaller firms. It indicated that debanking and the use of personal guarantees were putting small businesses at risk.
In a bid to address the latter, members of parliament recommended that the Financial Conduct Authority (FCA) gives the Financial Ombudsman Service powers to address personal guarantees for small- and medium-sized enterprises (SMEs).
Read more: Small firms struggling to access affordable finance
“There is scope for lenders to improve their processes and controls in relation to personal guarantees,” Lovell said. “These issues were highlighted in our review of the Standards of Lending Practice for business customers earlier this year, and we are already in the process of updating our guidance on personal guarantees so that SMEs can be sure of fair treatment.”
She said new guidance will be published in the summer and urged SMEs to ensure their finance providers are registered with the LSB, as the business standards are the only lending protections of their kind for UK SMEs.
“As the committee has outlined, the FCA’s ability to act in this area is limited by its regulatory perimeter; the business standards extend protections to SMEs beyond this,” she said.
The Treasury Committee’s report cites evidence of more than 140,000 small businesses being debanked in the last year, often with little or no notice. At least 4,214 of those cases were attributed to ‘risk appetite’ without a clear or consistent explanation of what that meant.
Read more: MPs launch inquiry into SME lending
It was also found that the success rate of SME applications for bank loans fell from 80 per cent in 2018 to around 50 per cent in 2023.
Treasury Committee chair Dame Harriett Baldwin said: “There’s no hiding from the fact smaller firms have had a torrid time over the last few years. Unfortunately, what we have found over the course of the inquiry is that there are some instances where banks and regulators are making a tough world for small businesses needlessly tougher.
“Banks and regulators can’t wave a magic wand and solve all of the problems facing small businesses in this country, but they can certainly do more than they currently are. I hope banks, the regulators and the Treasury take careful note of what we’ve uncovered.”
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