We collected data from lender firms as a follow-up to the super-complaint from the Federation of Small Businesses (FSB).
Executive summary
On 8 December 2023, we received a super-complaint from FSB. This centred on the requirement for personal guarantees (PGs) to support lending to small and medium-sized enterprises (SMEs).
Small businesses are a vital part of the UK economy. FSB has an important role to play in supporting smaller businesses to succeed and grow and we welcome FSB raising these concerns with us.
The FSB’s complaint recognised that most SME lending sits outside the remit given to us by the Government and Parliament. For instance, any lending to limited companies, limited liability partnerships and partnerships consisting of more than 3 persons is outside our remit. Lending or commercial hire of a value over £25,000 for business purposes is also out of scope.
It is expected, and confirmed by industry intelligence, that the requirement for PGs to support lending is more common in unregulated business lending, in particular lending to limited companies.
In our response to the super-complaint, we said we would collect data from a representative group of lender firms. This would help us understand the number of PGs in place as a proportion of total SME lending.
We also asked questions about firms’ policies and procedures for PGs taken to support lending that falls within our remit.
Lending falls within our remit where the borrower is:
- borrowing £25,000 or less, and
- a sole trader, small partnership or other relevant recipient of credit as defined in Article 60L[1] of the FSMA (Regulated Activities) Order 2001/544
Our analysis of this data showed:
- The number of guarantees in place to support regulated lending is low.
- No material concerns about compliance with our Consumer Credit sourcebook (CONC)[2] – from the responses to our questions on firms’ policies and procedures relating to PGs.
- The number of complaints relating to PGs reported by firms and the Financial Ombudsman Service continues to be low.
It is important to emphasise that these findings relate to the very limited part of the SME lending market we regulate. Within that part of the market, we have not found evidence of harm from the work we have done that would warrant us taking further supervisory activity or developing additional guidance relating to the treatment of guarantors.
Our questioning of firms’ policies and practices has, however, identified practices that firms may want to adopt, to address some of FSB’s concerns.
Practices firms may want to adopt
We have shared our findings with the Treasury.
Our work
We requested information from firms on 5 specific areas.
1. Number of PGs in place as a proportion of total regulated lending to SMEs
We collected data from a group of lender firms to understand the total number of PGs in place as a proportion of their total regulated SME lending at the time of the survey request.
This showed that only 0.3% of all regulated loans from the total sample of firms (15) have a PG in place.
0.3% of all regulated loans from the total sample of firms (15) have a personal guarantee in place.
Our analysis of firm responses found:
- Of the 15 firms surveyed, 8 confirmed they do not take PGs to support regulated lending. One other firm is assessing whether to stop taking PGs for future regulated lending.
- Seven firms take or have in the past taken PGs to support regulated lending. For 6 of them, PGs make up less than 5% of their total regulated credit agreements. The firm that has PGs for more than 5% of its total regulated lending book no longer takes PGs for regulated credit agreements, having changed its policy within the last year.
The data also shows a reduction in the number of new regulated credit agreements for business purposes supported by PGs over the last 3 years across firms that take PGs.
2. Understanding firms’ policies
We wanted to better understand whether firms’ approach varied by:
- business sector
- whether they took unlimited guarantees
- whether they had minimum levels of borrowing below which they would not take PGs
The level of detail in firms’ responses to our questions varied. However, overall, the responses did not provide any concern that firms’ policies would result in harm to guarantors.
All firms confirmed that their approach does not vary between business sectors.
All firms confirmed that they do not take unlimited guarantees – PGs are taken for specific amounts and/or specific borrowing facilities.
Of the 7 firms that take PGs to support regulated lending, only 1 confirmed it had set a limit of lending below which it would not take a PG to support the lending (a ‘de minimis’ limit).
Setting an appropriate de minimis limit may help ensure that the use of PGs is proportionate to the risk lenders are seeking to manage.
3. Compliance with requirements of our Consumer Credit Sourcebook (CONC)
We also wanted to understand if firms’ policies comply with the obligations for firms carrying out credit-related regulated activities set out in CONC.
Pre-contractual information
From the responses to questions asked, we did not identify concerns with the firms’ policies and procedures on PGs complying with our requirements in CONC 4.2.22R[3] – pre-contractual information provision.
Assessing creditworthiness
Firms confirmed that under their current processes an assessment is completed on the ability of the guarantors to afford to repay their potential liability.
Follow-up, that pre-dates this super-complaint work, on the CONC compliance of a small number of historic practices is ongoing.
Collections and recoveries
Firms had specific steps to be taken to help ensure that both guarantors and primary borrowers are supported to get appropriate outcomes when a loan is in or approaching arrears, or in default.
4. Provision of post-contractual information to guarantors
FSB was concerned not enough information was given to guarantors during the lifetime of the guarantee obligation. Particularly in circumstances such as, when a:
- guarantor leaves a company (ceases to be a director/shareholder)
- guarantor ceases to have a relationship with the borrower (most likely in a situation where a spouse is providing a PG for a sole trader or partnership loan)
- business is sold (whether that be the sale of a limited company, a sole trader’s business, or a partnership business)
All firms surveyed confirmed that a guarantor can request, and be given, details of their liability at any point in time.
Only 1 firm confirmed it proactively communicates with guarantors annually. The same firm advised us that if a guarantor is involved in the daily running of the business and then withdraws their involvement, the guarantor will be reminded of their ongoing responsibility.
Another firm acknowledged that while its approach to communicating with guarantors is largely reactive, it is currently reviewing this. The firm aims to make communications with guarantors more proactive and designed to support guarantors through the lifetime of the loan and the guarantee.
A firm that proactively communicates with guarantors through the lifetime of the loan is acting in a way that is likely to address one of the concerns raised by FSB. Other firms may wish to consider this approach.
5. Complaints relating to PGs
Firms reported that they received very few complaints relating to PGs compared to the total number of SME complaints received.
Where complaints were received, these were less than 0.5% of the total number of regulated and unregulated SME lending complaints recorded by those firms.
Firms reported the most common reasons for PG-related complaints were:
- disputes when PGs are called in, relating to the guarantor’s understanding of the extent of their liability – in terms of the particular loan facilities which are in scope of the guarantee and also the total sum for which the guarantor is liable
- disputes about the release of PGs when borrowing is repaid or when the guarantor ceases to have a relationship with the borrowing business
- operational processes and delays relating to both the creation of new PGs and the discharge of existing PGs
We have not identified any systemic issues from the data we received on complaints from firms.
Complaints submitted to the Financial Ombudsman Service (FOS)
About 99% of small businesses in the UK can bring a complaint to the Financial Ombudsman Service (FOS)[4].
The Financial Ombudsman can help:
- small businesses
- micro-enterprises
- some charities and trusts
- individuals who act as personal guarantors for loans to businesses
A micro-enterprise is a business which:
- employs fewer than 10 people, and
- has annual turnover or a balance sheet that does not exceed €2m
A small business is a business which:
- is not a micro-enterprise
- has an annual turnover of less than £6.5m, and
- has a balance sheet total of less than £5m or employs fewer than 50 people
Complaints involving PGs provided for business lending (regulated and unregulated) were brought within the remit of FOS in 2019. This means it can only accept complaints relating to PGs provided for business lending agreed from April 2019 onwards. FOS does not record complaints relating to regulated and unregulated lending separately.
The table below shows that PG complaint volumes have increased since 2019.
At least part of this increase should be anticipated, as complaints from guarantors are more likely to be seen later in the lifecycle of the loan, rather than when the loan is taken out.
Overall volumes remain low.
| 2020/21 | 2021/22 | 2022/23 | 2023/24 | Q1 2024/25 | |
| Cases resolved on merit | 21 | 39 | 51 | 87 | 19 |
| Uphold rate | 43% | 31% | 22% | 15% | 37% |
Following our initial response to FSB[5], FOS confirmed a review was completed on PG records to ensure data was being captured consistently between years. This resulted in a new table being given to us. This data is unpublished and was pulled from a live case management system.