Banks charge 35% for emergency loans: crippling interest rates loom


Banks charge 35% for emergency loans: Companies face crippling interest rates as experts warn that the new crisis will get worse in spring than in 2008

  • Lenders have used the Chancellor’s flagship £ 19 billion loan fund to charge companies with “usurious” interest rates
  • Businesses face crippling repayments starting in March as the loans reach 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  • Experts predicted last night that the economy will be devastated this spring as taxpayers’ support is withdrawn










Banks will charge companies up to 35 percent interest on Rishi Sunak’s Covid emergency loans within weeks, The Mail on Sunday can reveal.

Data from this newspaper shows that lenders have used the Chancellor’s £ 19 billion flagship loan fund to charge companies with “usurious” interest rates that go into effect this spring.

Banks have issued loans totaling £ 35 million at rates of more than 14.99 percent – in one case as much as 34.9 percent – to companies that were closed by the pandemic, according to Treasury Department documents.

Crippling repayments: Banks will charge companies up to 35 percent interest on Rishi Sunak’s Covid emergency loans within weeks

Businesses face crippling repayments starting in March as the loans reach 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Experts predicted last night that the economy will be devastated this spring if taxpayer support is withdrawn – warning the pain would be worse than the 2008 crash.

They said the only hope of avoiding major breakdowns is for Sunak to support companies longer.

In addition to the repayment of coronavirus loans from March for hundreds of thousands of companies, the vacation regulation with 80 percent of wages will be discontinued at the end of April.

Richard Fleming – European head of restructuring at Alvarez & Marsal, which dissolved and sold the ruin of Lehman Brothers after the 2008 financial crisis – warned that a number of huge companies would go bankrupt.

“We’re going to see some big name breakdowns, definitely 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 have done good business, but Covid really beat them.

The damage is likely to be greater [than the financial crisis]. It still comes when it really flows through – it’s frightening and counts from May and June.

“In the second half of 2021, the health crisis will turn into a financial crisis as the vaccine kicks in and government support wears off.” Fleming said private equity firms with “trillions to invest” would pounce on weak, indebted companies.

“I think you will see many companies move to private equity ownership,” he added. The prospect of banks charging exorbitant interest rates on troubled companies using Sunak’s flagship coronavirus business interruption loan program (CBILS) will heighten fears of a wave of bankruptcies.

Sunak rolled out the program on March 23 last year for companies affected by the lockdown and promised to pay the interest for the first 12 months. For 80 percent of loans that are not paid back, taxpayers are hooked.

The banks had promised to pass on the benefit of the state guarantee, which in theory should enable them to lend at lower cost.

However, an interest rate cap of 14.99 percent had to be introduced in June amid fears that banks could hit companies with sky-high interest rates.

Lenders who joined the system before the cap could continue to lend at any interest rate. The highest rate charged is 34.9 percent.

In total, loans totaled £ 19.6 billion were made under the program at an average interest rate of 5.6 percent.

Lord Myners, the former city minister who led the bank bailouts in 2008, said: “It is extraordinary that some of the loans were made at such rates.

“Are you really helping companies by lending them 14.99 percent money? It is incredible that this is usury. And these loans must definitely go ahead if repayments begin soon. ‘

Siobhain McDonagh from the Labor Party, who sits on the Treasury’s special committee, has protested to the Chancellor in writing. She said, “These are the prices you would expect on a credit card. Now is the time to pull together to support UK businesses and not load them with totally unreasonable debt. ‘

A spokesman for British Business Bank, the government-sponsored institution behind the loan program, said: “The CBILS requires that the economic benefits of the guarantee be passed on.

“As a result, it was unlikely that lenders could have justified many facilities above 14.99 percent, but the cap has now largely eliminated that possibility.”

UK Finance banking association said the “vast majority” of the loans were made at less than 14.99 percent interest. A spokesman said: “The lenders have agreed not to charge any loan setup or prepayment fees, but will of course bear the administrative and financing costs.”

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