As part of the probe, from April to June 2024, the FCA will gather data to gauge the prevalence of personal guarantees. Credit: Piotr Swat/Shutterstock.

The UK’s Financial Conduct Authority (FCA) has announced an investigation into the use of personal guarantees by lenders for small business loans.  

This decision follows a super complaint from the FSB, which expressed concerns about the increasing demand for personal guarantees and its potential adverse impacts on small businesses, particularly small limited companies. 

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The FCA’s remit, set by Parliament, does not cover lending to limited companies.  

Nevertheless, the FCA said it would assist small businesses within its jurisdiction.  

Should the FCA’s inquiry uncover relevant findings, it will relay this information to the appropriate government bodies, especially the Treasury, which is currently considering reforms to the Consumer Credit Act. 

As part of the probe, from April to June 2024, the FCA will gather data to gauge the prevalence of personal guarantees for sole traders and small partnerships borrowing less than £25,000.  

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The authority will also evaluate a selection of firms’ policies and procedures to comprehend the circumstances under which personal guarantees are mandated for loans within the FCA’s regulatory scope. 

Collaborating with the Financial Ombudsman Service (FOS), the FCA aims to track complaint levels regarding this issue.  

Furthermore, the watchdog will assess if there is a need for additional guidance for lenders on the application of the FCA’s rules, particularly those within the Consumer Credit Sourcebook, when personal guarantees are involved.  

If deemed necessary, the FCA will follow its standard protocol to consult on and issue such guidance. 

FCA executive director of consumers and competition Sheldon Mills said: “Small businesses are vital to the UK economy, and it is important that they can access lending to help them grow – so we welcome the FSB raising these issues. We will play our part to better understand whether lenders’ practices are causing unnecessary barriers to growth and, if necessary, act to remove any within our remit. 

“If we identify issues outside our remit, we will make these public so that Parliament and policymakers can consider whether greater protection should be available to small businesses.” 

A recent survey by Purbeck Personal Guarantee Insurance has revealed a significant lack of awareness among small business owners about personal guarantees linked to business loans.