The Federation of Small Businesses (FSB) has recently lodged a super-complaint to the Financial Conduct Authority (FCA), to address the strict lending practices of banks that excessively require personal guarantees to be given for business loans. In this article, we explore who the FSB is, the significance of a super-complaint, and its reasons behind this.
Who is the Federation of Small Businesses (FSB)?
The FSB serves as an advocacy group representing the interests of small businesses in the UK. The FSB has the authority to issue a super-complaint when it identifies a systemic issue adversely affecting a substantial number of small businesses.
What is a super-complaint?
A super-complaint is a formal request made by a consumer body designated by HM Treasury, such as the FSB, to make a reference to regulatory authorities like the FCA urging an investigation into a market issue that is, or appears to be, significantly damaging the interests of consumers.
The FSB recommends that the FCA conducts a thorough assessment of the use of personal guarantees in loan transactions and explores the possibility of the FCA broadening its regulatory scope. This approach could enhance safeguards for small businesses, particularly limited companies, where directors are required to provide personal guarantees in respect of the company’s liabilities, in turn putting their homes and other assets at risk.
The FSB’s super-complaint outlines various ways in which the overuse of personal guarantees negatively impacts small businesses. These challenges include businesses being discouraged from pursuing loan applications, opting for more expensive capital, unnecessary procurement of insurance against personal guarantees, and significant distress for individuals and their families in the event of a default.
In its super-complaint, the FSB urges the FCA to consider expanding the regulatory perimeter to include specific rules for lenders regarding the use of personal guarantees when lending to limited companies. This approach would strike a balance between the interests of borrowers and lenders, ensuring fair and responsible lending practices. However, the FSB acknowledges that if the FCA brings this within the scope of its regulation, lenders may become more conservative in approving loan terms and this may affect the availability of credit and pricing.
The FSB’s super-complaint highlights a critical issue affecting small businesses and calls for a comprehensive review of lending practices. By shedding light on the potential pitfalls of personal guarantees, the FSB aims to ensure that small businesses receive the support they need to thrive without undue financial risks. The outcome of the FCA’s investigation and any subsequent regulatory changes will undoubtedly have far-reaching implications for the framework of small business financing in the UK.
If you have any questions in connection with the above, please get in touch with our Real Estate Finance team