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Standard of lending practices

Standard of lending practices

The Standard of Lending Practices sets out lender and borrower responsibilities.

Amongst those for the lender are:

  • They will set out any requirements/conditions they may have to support any borrowing in a clear, understandable way.
  • They will confirm the conditions of the business borrowing in writing and highlight any covenants or material conditions attached to it.
  • They will clearly set out the type and frequency of information they will require to monitor the business’ performance.
  • If the business experiences difficulties, they will seek to understand the overall circumstances to try and identify suitable and pragmatic solutions.
  • Where appropriate, they will provide details of free debt advice.

And amongst those on the part of the borrower are:

  • All information the borrower provides to the lender will be accurate and timely.
  • The borrower will think carefully about whether the business can afford the product applied for, and be open in its dealings with the lender.
  • They will make sure they understand the terms and conditions associated with the product.
  • They will seek professional advice where this is appropriate for the needs of the business and the type of product applied for.
  • The business will maintain any commitments it has to its lender, for example providing information which may reasonably be requested to monitor performance.

Credit Monitoring

The Standards of Lending state that business customers will be supported by ‘pro-active and reactive measures designed to identify signs of financial stress’.

Lenders will have systems and controls capable of identifying, across the relevant products held, where customers may be showing signs of financial stress at any point in the customer life cycle, and pro-actively engaging with the customer to agree an appropriate solution.

  • Lenders should ensure that the customer understands what information will be required to allow them to monitor the business’ performance and how and when this should be provided.
  • They should provide customers with the ability to opt-out of any unsolicited increase in their borrowing limit(s).
  • They should ensure that a sufficient level of monitoring, underpinned by appropriate triggers and processes, of a customer’s borrowing is undertaken to help determine if the customer is exhibiting signs of financial stress. Where relevant, the lender should engage with these customers in a sensitive and supportive manner.
  • Where appropriate, lenders should initiate a timely review of the customer’s re-financing needs and an assessment of what needs to be in place ahead of any term loan expiry to maximise the prospect of successful re-financing.
  • They should ensure that relevant customer facing employees and relevant third parties are sufficiently trained and skilled to help them to identify and deal with those customers who may be showing signs of financial stress.
  • Lending firms should undertake monitoring and assurance work to ensure that their policies and processes are designed and are operating effectively in identifying and supporting customers who are showing signs of financial stress.
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If a business is affected by external factors that it can’t control like COVID-19 for example, then it needs to talk to its customers and make sure they know that is has a problem. Make sure you’re talking to people.

Philip King, Small Business Commissioner

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