FSB calls on regulator for support against ‘harsh’ banking practices
The FSB said lending practices "excessively demand personal guarantees for business loans," which can be a "straitjacket" on business growth.
In a battle to end “harsh” lending practices to small firms, the Federation of Small Businesses (FSB) issued a super complaint to the Financial Conduct Authority (FCA) in a plea for change.
The leading business group said banks’ lending practices “excessively demand personal guarantees for business loans”, which can put a damper on business growth and create a challenge for entrepreneurs.
FSB’s national chair, Martin McTague, said: “With interest rates having risen so sharply over the past couple of years, the availability and affordability of new finance for small firms has declined.
“Adding in personal guarantees on top of higher rates is clamping down on small firms’ appetite and ability to grow and invest.”
The FSB called on the FCA to review banking practices and consult with the Treasury to expand its regulatory perimeter to help more small businesses, particularly those where directors often provide personal guarantees.
McTague added: “Small firms are by definition the ones with the most potential to grow and to go from start-up to scale-up.
“The FCA needs to find a balance so that lending is neither overcautious nor reckless, and the sensible steps we have set out in our super-complaint would be a great place to start.”
According to Enterprise Nation’s Small Business Barometer, 59 per cent of businesses in London expect to look for funding over the next year, with 25 per cent suggesting they are “very likely” to expand.
Enterprise Nation‘s head of policy Daniel Wolf said more flexible lending options would therefore have a substantial impact on growth in the capital.
“Our members have told us that even if their businesses can demonstrate their profitability, banks are still demanding personal guarantees before committing to a loan,” Wolf said.
“This creates a Catch-22 situation for small businesses: they need the loan to grow, but they are unwilling to put their personal assets at risk.”
A spokesperson for the FCA said: “The Government and Parliament have not included business loans to companies or for more than 25,000 within the regulatory perimeter.
“We will consider the complaint carefully in line with the relevant legal framework and respond.”
