Banks to charge 35% on emergency loans: crippling rates looming
Banks to charge 35% on emergency loans: crippling rates loom for businesses as experts warn new spring crisis will be worse than in 2008
- Lenders have used Chancellor’s flagship £ 19bn loan fund to charge companies ‘usurious’ rates
- Businesses will face crippling repayments starting in March as loans hit their one-year anniversary date and the 12-month interest-free period comes to an end
- Experts predicted last night that the economy will be devastated this spring as taxpayer support is withdrawn
Banks will charge businesses up to 35% interest on Rishi Sunak’s emergency Covid loans in a few weeks, The Mail on Sunday can reveal.
Data seen by the newspaper shows that lenders have used the Chancellor’s flagship £ 19 billion loan fund to impose ‘usurious’ rates on businesses, which will come into effect this spring.
Banks have issued £ 35million in loans at rates of over 14.99% – or even 34.9% in one case – to businesses shut down by the pandemic, according to Treasury documents.
Chilling repayments: Banks will charge businesses up to 35% interest on Rishi Sunak’s emergency Covid loans within weeks
Businesses will face crippling repayments starting in March as loans hit their one-year anniversary date and the 12-month interest-free period comes to an end.
Last night, experts predicted the economy would be devastated this spring with the withdrawal of taxpayer support – and warned the pain would be worse than the 2008 crash.
They said the only hope to avoid major collapses was Sunak to support businesses longer.
In addition to coronavirus loan repayments from March for hundreds of thousands of businesses, the paid leave scheme at 80% of wages will be phased out at the end of April.
Richard Fleming – European head of restructuring at Alvarez & Marsal, which dismantled and sold the ruins of Lehman Brothers after the 2008 financial crisis – warned that a number of giant companies would go bankrupt.
“We’ll see big name meltdowns, most definitely, you’ll see it in restaurants, retail, travel and tourism,” Fleming told The Mail on Sunday.
“The big change from the financial crisis is that we are dealing with companies that were good companies, but Covid has really hit them.
The damage is probably greater [than the financial crisis]. It’s just when it really sinks through – it’s terrifying and there will be a reckoning from May and June.
“The second half of 2021 is when the health crisis turns into a financial crisis as the vaccine goes into effect and government support wanes.” Fleming said private equity firms with “billions of billions to invest” would rush to weak and indebted companies.
“I think you’re going to see a lot of companies migrate to private equity,” he added. The prospect of banks charging exorbitant interest rates on distressed companies that have used Sunak’s flagship Coronavirus Business Interruption Loan (CBILS) program will exacerbate fears of a wave of insolvencies.
Sunak launched the program on March 23 last year for businesses affected by the foreclosure, pledging to pay interest for the first 12 months. Taxpayers have to pay 80 percent of loans that are not repaid.
The banks had promised that they would pass on the benefit of the state guarantee, which should theoretically allow them to lend at a lower cost.
But a 14.99% interest rate cap had to be introduced in June over fears that banks would hit companies with sky-high rates.
Lenders who entered the program before the cap were still allowed to provide loans at the rate they chose. The highest rate that has been charged is 34.9 percent.
Overall, loans totaling £ 19.6 billion were issued under this scheme, at an average rate of 5.6%.
Lord Myners, the former city minister who orchestrated the bank bailouts in 2008, said: “It is extraordinary that some loans have been made at such rates.
“Are you really helping businesses by lending them money at 14.99%? It is beyond comprehension, these are usurious rates. And these loans will certainly have to be rolled over if repayments start soon.
Siobhain McDonagh of the Labor Party, who sits on the Treasury MPs select committee, wrote to the Chancellor in protest. She said, “These are the kind of rates you would expect from a credit card. Now is the time to come together to support UK businesses, not burden them with totally unreasonable debt.
A spokesperson for British Business Bank, the government-backed institution behind the loan program, said: “It is a requirement of the CBILS agreement that the economic benefit of the guarantee is passed on. .
“As a result, it was unlikely that lenders could have justified many facilities above 14.99%, but the cap has now largely eliminated that possibility.”
Commercial banking organization UK Finance said the “vast majority” of loans were issued at rates below 14.99%. A spokesperson said: “The lenders have agreed not to charge any fees for setting up the loan or for early repayment, but will of course bear the administrative and financing costs.”