LSB changes their business standards in relation to personal guarantees

On 12 September 2024, the Lending Standards Board announced changes to its Standard for Lending Practice for business customers to provide stronger protections for SMEs where the lender requires a personal guarantee. The changes aim to ensure that guarantors receive clear information about what they are signing up for and are kept updated as to their liability. 

The updates are made following the LSB’s review of its business Standards in 2023. As part of the review, the LSB considered that lenders’ processes for reviewing guarantees could be more effective to ensure the information held remained correct and up to date, particularly where the debt was no longer outstanding, or the directors of the company had changed.

The key changes to the business Standards are set out below:

• Updated requirements on lenders to advise potential guarantors of the need to seek legal advice upon the implications of becoming a guarantor and whether it is the right choice for them.

• Enhanced guidance for lenders about providing information to potential guarantors about how the guarantee works and what their obligations will be. These changes are intended to improve the information given to potential guarantors before they enter into guarantees so that they can understand the obligation they are entering into.

• Annual personal guarantee reminders. From September 2025, lenders will need to provide an annual reminder to guarantors to confirm that the personal guarantee remains current. This requirement seeks to ensure lenders can maintain up to date records for guarantors. It will also assist guarantors to monitor their liability and remind them to contact lenders if they believe their liability has been extinguished, or if they are no longer associated with the company debtor.

These changes apply from 12 September 2024 (save for the annual guarantee reminder requirement which applies from 8 September 2025).

What it means for you

For lenders who are seeking personal guarantees to support business lending, if you are not doing so already, firms should:

• inform the customer if any security, for example, a guarantee/debenture/indemnity, is required to support the borrowing or other liabilities and the reason why. The level of security required by the firm should be appropriate to the amount borrowed. 
• ensure that the customer and the guarantor are provided with clear information on the circumstances under which the security will be released. The security should not be relied upon beyond the life of the borrowing. 
• confirm the conditions of any facility in writing and recommend that the customer and the potential guarantor seek independent advice before accepting the facility.  If an individual or a business agrees to be a guarantor or to provide an indemnity, the firm should make the individual/business aware of their obligations under the agreement and that they have the option to seek legal advice, should they wish to do so.
• not accept unlimited guarantees from an individual/business
• ensure that where an individual provides a guarantee/indemnity or other security, they are able to request information regarding their current level of liability, as long as the customer gives their permission and confidentiality is not breached.
• contact personal guarantors on a regular basis to confirm the information held about the guarantor; and, from September 2025 provide an annual reminder that the guarantee remains current.

Contributors: Amy Earlam, Emily Black, Graham Walters, Sian Davies, Richard Hayllar

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2024. Specific advice should be sought for specific cases. For more information see our terms and conditions.