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The Federation of Small Businesses (FSB) has issued a super-complaint to the Financial Conduct Authority (FCA) to highlight the harsh lending practices of banks that excessively demand personal guarantees for business loans.<\/p>\n
Personal guarantees can be a \u201cstraitjacket\u201d on business growth, the group said, forcing entrepreneurs to put their homes or other assets on the line when taking out finance.<\/p>\n
The FSB has warned this can be particularly paralysing when they are applied to small loans \u2013 leaving many business owners more likely to abandon their business or growth plans or push them into being over-cautious in their decision-making, deterred from making bold choices.<\/p>\n
FSB\u2019s National Chair, Martin McTague, said: \u201cPut yourself in the shoes of an entrepreneur who\u2019s created a promising business and is keen to grow. You approach your bank for a small loan, but they say you can only have the money if you sign a personal guarantee which would ultimately put your family home or other assets at risk.<\/p>\n
\u201cThis is a straitjacket on small business growth. It is no wonder that many small business owners in that position are telling us they are choosing to avoid external funding which they could be using to capitalise on new opportunities.\u201d<\/p>\n
READ MORE <\/strong> Man, 68, earns \u00a3100 just by turning down thermostat in energy saving scheme<\/strong><\/p>\n The FSB is therefore proposing that the FCA undertake work to assess the extent of this practice, and then consider asking the Treasury to expand its regulatory perimeter to help more small businesses affected, typically limited companies where directors provide personal guarantees.<\/p>\n As a designated consumer body by law, the FSB has the ability to send a super-complaint to the FCA when the issue becomes troubling enough for a large number of small firms whose individual complaints may not get the same hearing.<\/p>\n The super-complaint sets out a number of other ways that overuse of personal guarantees may be damaging small firms, including:<\/p>\n Don’t miss… <\/strong> The FSB claims market distortions in small business lending and the wider economy may arise if certain sectors receive less favourable treatment regarding demands for personal guarantees.<\/p>\n Currently, personal guarantees most often apply to loans taken out by companies which are guaranteed by their directors. This type of lending is not covered by FCA regulations, likely because the concept of limited liability meant the risk of financial detriment to individuals was assumed to be low.<\/p>\n However, the use of personal guarantees has undermined this argument, greatly reducing the kind of risk-taking by business owners that the concept of limited liability was originally developed to encourage.<\/p>\n The FCA is being urged that, should the regulatory perimeter be expanded, the regulator needs to make specific rules for lenders regarding the use of personal guarantees in lending to companies, which balance the interests of borrowers and lenders appropriately.<\/p>\n\n
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