In December 2023, the Federation for Small Business (FSB) filed a “super-complaint” with the FCA concerning the increased requirement for personal guarantees to secure business lending.
In March 2024, the FCA responded to that super-complaint by embarking on a variety of data collection, reviews and testing of lending firms and policies FCA compliance with respect to regulated lending over a period of time. Given the timing of the response, it may be some time before all that data is collected.
In relation to the provision of personal guarantees relating to limited company borrowing, or any business lending to sole traders and partnerships above £25k, none of this at the moment applies, because as far as the FCA is concerned, this is unregulated lending.
However, the FCA has indicated that if they found there was potential harm outside of the regulated environment (presumably to individuals), then they would provide these findings to the relevant government and parliamentary bodies that have an interest in SME (Small and Medium sized Enterprises) finance and business lending, and also to the Treasury as they look to reform the Consumer Credit Act.
It is interesting to note that neither the FSB’s super-complaint nor the FCA’s response has dealt with the issue that on default of a limited company debt, many secondary lenders, who tend to charge more punitive interest rates in any event, can pursue a personal guarantee for the immediate payment not only of the outstanding capital and interest to date, but also ALL of the interest due in the future, even if that interest is not due for a period of 5 to 10 to years, depending on the repayment span of the agreement. Clearly, under such circumstances, it could be considered that it might be in the best interest of such lenders for businesses to fail as soon as possible to accrue maximum and more immediate value out of such agreements, which could be deemed to be potential harm to individual guarantors.
Perhaps some action groups would like to take this up with the FCA, relevant government and parliamentary bodies, the Treasury and other interested bodies.
You can find out more about the Super-Complaint on the FCA website HERE
If you require assistance regarding a Personal Guarantee related to Limited Company business finance and or trade suppliers, please contact us HERE
