In an unprecedented move, the Federation of Small Businesses (FSB) has urged the Financial Conduct Authority (FCA) to intervene in what it describes as “cruel” banking practices that it insists force entrepreneurs to unnecessarily put their homes at risk.
The lobby group made a “major complaint” – the first to be lodged with the FCA since it was included in the system in 2012 – about “banks excessively requiring personal guarantees for business loans”. The FCA has said it will consider the complaint carefully and respond, which in all likelihood – given the watchdog’s ridiculous track record – means it will spend its life chewing on the issue and doing nothing about it.
The truth is that few national institutions are acting in light of the inactivity of the country’s top financial regulatory body.
The Financial Stability Board must be commended for sounding the alarm about such practices. As its chairman Martin McTague admits, such guarantees are “quite reasonable” when a company does not have many physical assets of its own. In fact, this is a completely normal practice.
Tales abound of aspiring entrepreneurs offering up their homes as collateral, or remortgaging their homes so they can get a business idea off the ground, and it’s not at all unusual for banks to ask for other types of personal guarantees from startup managers before they’ll lend to them.
But as McTague rightly points out, “proportionality” is sorely needed, and never more so than during these straight-laced times. As the financial collapse showed – whenever a crisis hits, banks are quick to panic and toughen their positions with borrowers, many of whom will be long-time customers who have never defaulted.