In response to the Federation of Small Business (FSB) “super-complaint” issued to the Financial Conduct Authority (FCA) at the end of last year (see our previous article: Personal guarantees in the spotlight as FCA asked to investigate lending practices), the Lending Standards Board (LSB) has updated its Standards of Lending Practice for business customers, with changes aimed at better protecting guarantors, specifically those giving a personal guarantee to support a loan made to an SME.

Lenders may require a guarantee from a director when they are concerned about an SME’s creditworthiness. Often directors will agree, making themselves personally liable for repayment of the loan (sometimes up to a specified cap), to ensure that the funding is obtained. This credit support can enable an SME to access funding it otherwise couldn’t – the LSB recognises this but says that the new requirements are intended to balance protections for lenders, SMEs and guarantors while “avoiding adding friction to the lending journey.”

On 12 September, the LSB announced the new updates to the standards which impose further requirements on lenders to adequately explain to potential guarantors the extent of their obligations and potential liability for the debts of a business.

Changes which are effective immediately include: 

• Updates to the requirements for lenders on advising potential guarantors of the need to seek independent legal advice.
• Enhanced guidance for lenders on providing information to a guarantor about how the personal guarantee will function and their obligations under it. 

The updated standards include requirements for the lender to remind guarantors annually that they have given a personal guarantee, allowing guarantors to monitor the scope of their personal liability. The LSB also hopes that this will provide guarantors with an opportunity to inform the lender of crucial updates, such as changes to their involvement with the borrower. This change will apply from 8 September 2025 to allow lenders to make the necessary arrangements.

Although the LSB’s data found that only ~2% of personal guarantees are called on from year to year, the FSB’s concern was that where they are called, the serious consequences for the individual guarantor were disproportionate to the potential loss to the lender. The LSB hopes that these changes dissuade lenders from requiring personal guarantees as standard practice without reducing the level of lending to small businesses.