In its latest circular the Financial Ombudsman Service discusses the obligation of credit unions and mutual building societies to try to help small business customers overcome their financial difficulty.

The Mutual Banking Code of Practice specifically applies to “small business” customers which are defined as “a business having fewer than: a) 100 full-time (or equivalent) people if it involves the manufacture of goods; or, b) in any other case, 20 full time (or equivalent) people.”

Clause 24.1 of the MBCP states:

“We will work with you in a constructive way if you experience genuine difficulties meeting your financial commitments. With your agreement and commitment, we will try to assist you to overcome those difficulties. We will do this whether or not you have a right to seek hardship variation or change under consumer credit laws.”

Even though the FOS concedes it does not have the power to vary business loans it does require mutuals to show they have given genuine consideration to a small business’ financial difficulty. The same principle applies to guarantors.

The circular discusses the FOS’s options and gives some helpful case studies.