Business lending

New lending standards for businesses introduced




The new Standards of Lending Practice for business customers have been published by the Lending Standards Board (LSB).

Today, Lord Prior of Brampton, the parliamentary under secretary of state at the Department for Business, Energy and Industrial Strategy, launched the new Standards of Lending Practice for business customers, which will replace its Lending Code.

The new standards will see a change in product scope and the protections extended from micro-enterprise customers to include businesses with a turnover of up to £6.5m.

The new standards will bring enhanced protections for a much wider range of businesses to support organisations in achieving fairer customer outcomes.

These will range from the initial product offering and the application process to account servicing, portfolio management and identifying signs of financial stress. 

The standards will look to create an opportunity for the industry to rebuild trust and confidence with customers.

The seven core principles of the Standards of Lending Practice will ensure that customers:

1.    are told about the products the firm has to offer and provided with clear information to enable them to choose a product that meets their needs 

2.    are provided with information about how to apply for the different products a firm offers, what the application process entails and any other requirements a firm may have 

3.    are aware of the high-level basis on which the firm will make its decision to lend to them. If the customer’s application is declined, the primary reason for this will be provided 

4.    are aware that they have the right to appeal a firm’s decision to decline their application and, where appropriate, have the option to be referred to alternative sources of finance 

5.    will be provided with clear and understandable documentation, which sets out their obligations under their agreement with the firm 

6.    are aware of the options open to them if they anticipate – or a firm becomes aware – that they will have or are experiencing difficulty in repaying their borrowing  

7.    will know what happens when they have repaid their borrowing or no longer require it.

Dave Pickering, chief executive at the LSB, said the new Standards of Lending Practice will place a strong focus on lenders to be clear, supportive and fair when it came to lending to small businesses. 

“While the new business standards will bring significant improvements to the protections available for SMEs, this is only the start of the journey. 

Dave Pickering
Dave Pickering, chief executive at the LSB

“The LSB – in its role as the independent oversight body – will be monitoring how the standards are being achieved and will hold firms to account where standards fall short. 

“We will continue to work with financial institutions, regulators and other industry stakeholders to ensure self-regulation continues to evolve and fair outcomes are achieved.”

Chris Pond, chair of the LSB, was confident that the new standards would bring positive change to registered firms and increased protections for customers.

“The new Standards of Lending Practice provide a clear framework that supports lenders in achieving fair outcomes for their business customers. 

“Through the seven core principles, which underpin the standards, business customers will know exactly what they can expect from their lenders, placing a strong focus on firms to be clear, supportive and fair when it comes to lending to small businesses.

“The Lending Standards Board will continue to provide independent oversight of adherence to the standards and challenge the industry to improve.”
 
The new standards will become effective on 1st July with the applicable provisions within the existing Lending Code remaining in force until then. 

The standards will be independently monitored and enforced by the LSB and, like the Lending Code, are being sponsored by the British Bankers' Association and the UK Cards Association.

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