Banks may revise code on loans

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The Independent Online
BANKS are to look at improving their code of conduct to cope with problems that have arisen where spouses give guarantees for business loans taken out by their partners.

Recent cases have highlighted difficulties where the outstanding amount on loan facilities has been increased, automatically raising the exposure of the guarantor.

An existing code of conduct requires banks to advise spouses to take legal advice before they sign guarantees, and the forms have a health warning saying the security could be called upon if the business goes bust.

But there is no requirement to advise the guarantor if the loan is increased, as it often is before a company runs into trouble.

The British Bankers' Association said the problem could be tackled with the next review of the code, for which representations are due by June.

The BBA also said the improved small business loan guarantee scheme, announced in the Budget, was being held up at the Department of Trade and Industry by difficulties over a legal technicality - the definition of what constitutes an established business. This has a big effect on the amount a company can borrow under the scheme. The BBA said it was working closely with the DTI on the details of the scheme.