Lenders must spell out personal guarantee risks
Following publication by the FCA of its follow-up work in respect of the FSB’s Super-Complaint on personal guarantees for business loans, Todd Davison, MD of Purbeck Insurance Services, the provider of personal guarantee insurance to the owners and directors of small businesses responds:
Todd Davison says: “This investigation could only go so far given the FCA’s remit only covers sole traders, small partnerships and where the borrowing is less than £25,000. As such we support the FSB’s recommendation to include personal guarantees in the FCA’s Consumer Duty. That being said, the FCA found little evidence of the misuse of personal guarantees or complaints.
“There is no getting away from the fact that personal guarantees have become an almost unavoidable part of securing a small business loan so it is vital business owners and directors are educated on the risks and the steps they can take to mitigate those risks. To that end, we welcome the FCA’s proposal that lenders improve communication with customers who are taking the big decision to become guarantors, particularly after a loan has been agreed. The FCA has also recommended that lenders set a threshold below which a personal guarantee should not be required.
“Ultimately, lenders do have a responsibility to spell out exactly what signing a personal guarantee means so that small business owners can make informed decisions about the risk they are accepting in return for a business loan.”
