SMFSC Reviews Use of Personal Guarantees in SME Lending

Council Launches Review to Assess Fairness and Transparency in SME Finance

The San Marino Financial Standard Council (SMFSC) has announced that it will launch a detailed investigation into the use of personal guarantees in small business lending, amid concerns that some lending practices may expose entrepreneurs to unnecessary personal financial risk.

The review forms part of SMFSC’s wider commitment to promoting fair treatment of small and medium-sized enterprises (SMEs) and ensuring that access to credit supports growth rather than creating undue hardship.

“We recognise the vital role small businesses play in driving economic progress,” said an SMFSC spokesperson.
“Our investigation aims to ensure that lending terms are transparent, proportionate, and consistent with responsible finance principles.”

Background: Growing Reliance on Personal Guarantees

Personal guarantees are commonly used by lenders as a form of security for small business loans, allowing them to recover funds directly from business owners if the company fails to repay.
While such arrangements can facilitate access to credit, SMFSC has identified cases where guarantees are applied excessively or without adequate explanation of the risks involved.

The council’s early findings indicate that some borrowers did not fully understand the implications of signing these guarantees, particularly the potential impact on personal assets such as homes or savings.

Scope and Objectives of the Investigation

The SMFSC investigation will assess how lenders and financial intermediaries:

• Explain personal guarantee obligations to borrowers at the time of agreement.
  
• Assess affordability and proportionality, ensuring guarantees are not demanded where unnecessary.
  
• Handle defaults or enforcement actions, including treatment of guarantors in financial distress.
  
• Communicate risks clearly, avoiding complex or misleading documentation.
  

The review will cover a cross-section of banks, credit institutions, and alternative finance providers, with findings expected to shape new guidance on best practices in SME lending.

Protecting Entrepreneurs and Promoting Responsible Lending

SMFSC emphasized that the purpose of the review is not to restrict lending, but to encourage a fairer and more transparent credit environment.
Many small businesses depend on personal guarantees to access growth capital, but the council believes that greater clarity and oversight can improve trust between lenders and borrowers.

“Responsible lending is not just about compliance—it’s about respect for the people who create jobs and drive innovation,” the council stated.
“We want to ensure small business finance empowers, not endangers, entrepreneurs.”

Collaboration and Next Steps

The council will work closely with business associations, financial institutions, and legal experts throughout the investigation.
An interim report will be published later this year, followed by policy recommendations and potential rule changes in 2026.

SMFSC also plans to develop educational materials for business owners, outlining what personal guarantees mean, how they work, and what protections are available.

A Step Toward Fairer SME Finance

This initiative underscores SMFSC’s ongoing mission to balance innovation, access, and consumer protection across all areas of finance.
By addressing concerns around personal guarantees, the council aims to strengthen trust and transparency in San Marino’s small business lending sector—helping entrepreneurs access funding on fair and responsible terms.