Following its recent review, the Lending Standards Board (LSB) has strengthened provisions on the use of personal guarantees by lenders operating in the UK SME market, which includes new requirements for lenders and bolsters existing protections and guidance. For the purposes of the LSB's guidance and standards, a UK SME is an SME with a turnover of up to £25m.
As part of its review, the LSB found there was room for improvement for lenders' processes for reviewing guarantees. In particular, the LSB's review found that they could do more to ensure the information held about guarantors is current (for example, where lending has been repaid or where there are changes within the SME at director-level).
The central changes to the standards and accompanying guidance on personal guarantees include the following:
- there is a new requirement for lenders to provide guarantors with annual reminders that their personal guarantee remains in place. This is designed to ensure lenders maintain up-to-date records on who is liable for a guarantee and is also designed to help guarantors keep track of their own liability. It is hoped that, by sending reminders, these will serve as prompts for guarantors to speak to the lender if they are no longer associated with the SME in receipt of lending, or, if they believe the lending has been fully repaid.
- there are updates to the requirements for lenders on advising potential guarantors of the need to seek independent legal advice, which specifies that a lender should make the individual / business aware of its obligations under the guarantee and that they have the option to seek legal advice, should they wish to do so.
- there is improved guidance for lenders on providing information to a guarantor about how the personal guarantee will function and their obligations under it.
The changes to existing provisions in the standards and accompanying guidance apply with effect from 12 September 2024. However, the new requirement to send annual reminders to guarantors will apply from 8 September 2025. This is to allow lenders time to put processes in place to deal with this.
For those interested in reading more, the updated standards published by the LSB can be found here.
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