On 12 September 2024 the LSB announced stronger protections for SMEs using personal guarantees. It has strengthened provisions on personal guarantees within its business standards. The changes aim to help ensure lenders are clear with guarantors about what they are signing up to, and help avoid situations where a guarantor is surprised to find out they are personally liable for lending to a business, by providing annual reminders.

The LSB’s work to update the business standards has been carried out alongside the Financial Conduct Authority's (FCA) ongoing project as it responds to the Federation of Small Businesses’ super-complaint. The LSB’s review found that the overwhelming majority of personal guarantees are linked to lending to limited companies – and these companies sit outside the FCA’s perimeter for SME lending. As such, any action the FCA takes will only apply to a small minority of SMEs.

The LSB’s review of its requirements on personal guarantees included an analysis of their use across the LSB’s registered firm base. It found that issues with guarantees among the LSB’s registered firms are rare. Lenders typically only call on these guarantees as a last resort.

Key changes to be aware of:

The updates to the business standards include important new requirements for lenders as well as improvements to existing protections and guidance. The key changes include the following:

• A new requirement for lenders to provide guarantors with annual reminders that a personal guarantee remains in place. This will ensure lenders can maintain up-to-date records on who is liable for a guarantee and will help guarantors keep track of any liability. These reminders will serve as prompts for guarantors to speak to a lender if they are no longer associated with a business in receipt of lending, or if they believe the lending is no longer outstanding.
• Updates to the requirements for lenders on advising potential guarantors of the need to seek independent legal advice to determine if becoming a guarantor is the right choice for them.
• Enhanced guidance for lenders on providing information to a guarantor about how the personal guarantee will function and their obligations under it.

Next steps

• Updates to existing provisions in the business standards and accompanying guidance will apply from 12 September 2024.
• Lenders will be given time to put necessary processes in place for annual reminders regarding guarantees. The new requirements will apply from 8 September 2025 to allow lenders the time to put the necessary processes in place.