FCA’s investigation into personal guarantees ‘severely undermined’

The Financial Conduct Authority has announced its investigation into personal guarantees, which has been met with criticism.

This has been led by the Federation of Small Businesses (FSB) due to the investigation not covering loans to directors of limited companies.

Martin McTague, National Chair of the FSB, explained, “The FCA’s investigation was severely undermined even before it got underway by the regulator’s decision not to look into loans to limited company directors, as we requested in our supercomplaint.

“Lenders are most likely to ask for a personal guarantee when lending to a limited company, and some do so as a blanket and disproportionate policy. The FCA has not looked at this segment of the lending market at all.

“The chilling effect of being asked to risk your family home undermines risk-taking and investment by company directors, while the consequences for a director’s personal finances if a personal guarantee is called upon can be devastating.”

Martin added, “Adding a personal guarantee to every commercial loan, regardless of its size or the potential impact on the borrower, cannot and should not be a quick-fix substitute for proper assessment of a business’s needs.

“The Bank of England found that seven in ten businesses preferred to grow slowly rather than take on debt, with the shadow of personal guarantees a large factor in countless small businesses’ and entrepreneurs’ decisions.

“The Government should act by legislating to include personal guarantees within the FCA’s Consumer Duty, in order to free up small business owners to invest and grow. An announcement to this effect in next year’s Small Business Command Paper would be very welcome.”

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