Business borrowing in the UK looks simple until you hit the rules around who’s lending, who’s borrowing and what’s being promised. Some loans are largely a matter of contract law. Others fall inside the Financial Conduct Authority (FCA) perimeter, where marketing, documentation and customer treatment are policed. Getting this wrong can create unenforceable agreements, unexpected complaint rights and board level headaches. UK Loan Regulations are not just for banks, they shape how SMEs raise money and how they offer credit to customers.
Most problems start with assumptions: that ‘business’ automatically means unregulated, that a broker is just an introducer, or that a personal guarantee is a formality. The detail matters, and it’s usually visible from day 1 if you know what to look for.
In this article, we’re going to discuss how to:
- Work out whether a loan, broker or promotion is regulated in the UK
- Spot the contract terms and security structures that drive risk for directors and owners
- Use a simple diligence framework before signing, refinancing or offering credit
UK Loan Regulations: Where The Rules Actually Apply
‘UK Loan Regulations’ isn’t one single rulebook. For most businesses, the question is whether the activity sits inside financial regulation or is mainly governed by general law, plus a few targeted regimes.
The FCA regulates certain lending and related activities under the Financial Services and Markets Act 2000 (FSMA) and the FCA Handbook. The practical line is the FCA ‘perimeter’, meaning the boundary between regulated and unregulated activity. The FCA publishes perimeter guidance to help firms and borrowers understand that boundary: FCA PERG (Perimeter Guidance).
Separately, loan agreements are still contracts. Even if a loan is unregulated, you’re dealing with enforceability, misrepresentation, unfair terms arguments (depending on the parties), insolvency consequences and directors’ duties where a company is borrowing. None of those disappear because the FCA isn’t involved.
Regulated Vs Unregulated Business Borrowing
Many corporate loans to limited companies are unregulated. That said, regulation can apply through the borrower’s legal form, the purpose, the way the loan is structured, or where lending is paired with other regulated activity.
Common situations where regulation may come into play include:
- Borrowers who are individuals, including sole traders, even if the borrowing is ‘for business’ in everyday language.
- Credit offered to small partnerships in certain cases, depending on how the agreement is drafted and the status of the recipients.
- Consumer credit style products that look like business borrowing but are in substance lending to an individual.
- Broking and promotions, where the conduct rules can bite even if the underlying lending is not regulated in the same way.
If you’re unsure, start with the Consumer Credit regime and the FCA’s consumer credit sourcebook, because that’s where many borderline cases sit: FCA CONC. For the legislation background, see the UK Government’s publication of the Consumer Credit Act 1974. The regime has been amended over time, so reading the current version matters.
Why does this matter to a business borrower? Because if a transaction is regulated, there are rules around pre-contract information, creditworthiness checks in some cases, arrears handling and complaint routes. A lender or broker that treats a regulated deal like an unregulated one is taking a legal and reputational risk, and that can spill onto the borrower when things go wrong.
What Lenders And Brokers Must Do Under FCA Rules
Businesses often engage a broker for speed. The risk is assuming the broker is ‘just introducing’ and that nothing regulatory attaches. In reality, credit broking can be a regulated activity depending on the product and who the borrower is.
If the transaction is regulated, firms need the right FCA permissions and must follow conduct standards. As a borrower, the practical angle is to check what you’re being sold and whether the intermediary is acting with the right authority. The FCA’s public register is the reference point: FCA Register.
Also watch financial promotions. If a loan is promoted in a way that falls within the financial promotion rules, the content and approval of the promotion matter. This is rooted in FSMA and related rules: FSMA 2000. Even sophisticated borrowers can be tripped up by marketing that’s heavy on headline rates and light on fees, security and covenants.
Documentation And Terms That Create Trouble
Loan paperwork is where commercial reality is written down, and where the risk usually hides. You don’t need to be a lawyer to sanity check the areas that blow up most often.
Fees, Interest And How They Can Change
Look for: arrangement fees, broker fees, monitoring fees, early repayment charges and default interest. Focus on the triggers, not just the numbers. If the lender can reprice after a ‘material adverse change’ or at its discretion, you need to understand what that means in practice and whether you can refinance if terms move against you.
Covenants And Information Rights
Covenants are promises to do (or not do) certain things, like maintain a minimum cash balance, submit management accounts, or avoid taking on more debt. Breaching a covenant can trigger default even if payments are up to date, which matters during volatile trading periods.
Events Of Default And Acceleration
An event of default is a defined trigger allowing the lender to demand repayment immediately. Common ones include late payment, incorrect statements, insolvency events and cross-default (defaulting on another agreement). Cross-default is worth special attention, it can turn a small dispute elsewhere into a full funding crisis.
Security, Guarantees And Personal Liability
Security is the lender’s protection if you don’t pay. For SMEs it often includes a debenture (a floating charge over company assets), fixed charges over specific assets, or personal guarantees from directors.
Personal guarantees are not ‘standard paperwork’. They can survive refinances and extensions if drafted that way, and they can be called even when the underlying business is failing for reasons outside your control. If a guarantee is backed by a charge over a home, the personal risk moves from theoretical to real.
Also consider priority and consent. If you already have a charge registered at Companies House, a new lender may require subordination or a deed of priority. That can change who gets paid first in insolvency.
Data, Credit Reporting And Privacy
Loans involve data sharing: bank statements, management accounts, director IDs, beneficial ownership details and sometimes open banking feeds. Even unregulated lending still has to respect data protection law.
From a borrower’s angle, ask what data will be pulled, how it will be used, and who it will be shared with, especially where an intermediary is involved. For the UK’s baseline rules, see the Information Commissioner’s Office guidance on UK GDPR and data protection: ICO UK GDPR Guidance.
Credit reporting can also matter. Late payment markers, defaults and insolvency flags can affect access to future funding, insurance terms and supplier credit. Make sure you understand what triggers reporting and what the dispute process looks like.
A Practical Diligence Framework Before You Borrow Or Offer Credit
This is a grounded way to reduce surprises without turning every funding discussion into a legal project.
1) Classify The Deal
Who is borrowing (limited company, sole trader, partnership), what is the stated purpose, and is there any consumer element? If the borrower is an individual, treat regulation as a live issue until you’ve confirmed otherwise.
2) Map The Money Flow
Where do fees go, who receives commissions, and are payments made to a broker up front? If money flows to third parties, ask what they did to earn it and what happens if the loan doesn’t complete or is repaid early.
3) Stress Test The Bad Month
Assume revenue dips and one covenant is missed. What happens: waiver fee, margin increase, demand for extra security, immediate repayment? If the contract gives the lender wide discretion at the worst moment, plan for that reality.
4) Treat Personal Guarantees As A Separate Decision
Decide whether the business case still works if the guarantee is called. If the answer is ‘no’, that’s not necessarily a deal breaker, but it’s a risk that needs to be priced, limited or avoided.
Conclusion
UK Loan Regulations matter because the label ‘business loan’ doesn’t automatically put you outside regulation, and the contract terms can bite harder than the headline rate. A few perimeter checks, plus disciplined review of covenants, defaults and personal guarantees, will prevent most funding shocks. The goal is not perfection, it’s avoiding one-sided commitments you can’t unwind.
Key Takeaways
- Work out early whether the loan or broking activity is regulated, especially where an individual is borrowing
- Read for triggers: repricing, covenants, cross-default and acceleration clauses often matter more than the initial rate
- Separate business risk from personal risk, and treat guarantees and security as board-level decisions
FAQs
Are business loans regulated by the FCA in the UK?
Many loans to limited companies are not FCA-regulated, but regulation can apply depending on who the borrower is and how the credit is structured. If an individual is borrowing, including many sole trader situations, it’s sensible to check the FCA perimeter.
What’s the difference between a regulated and unregulated loan agreement?
A regulated agreement brings FCA conduct rules into play, which can affect disclosures, handling of arrears and complaints. An unregulated agreement is mainly a contract law matter, but you still face enforceability, security and insolvency consequences.
Do directors have personal liability on company borrowing?
Not automatically, but personal guarantees, indemnities and security over personal assets can create direct liability. Directors can also face separate duties issues if borrowing decisions prejudice creditors when the company is under strain.
What should a small business check before signing a loan offer?
Check the total cost (including fees), the events of default and the covenant package, then stress test what happens in a weak trading month. If there’s a personal guarantee, assess it as its own risk rather than treating it as standard paperwork.
Disclaimer: This article is for general information only and does not constitute legal, tax or financial advice. Loan regulation and enforceability depend on the specific facts and documentation, so take appropriate professional advice for your situation.
