A small proportion of businesses that have taken out loans under the coronavirus business interruption loan scheme (CBILS) are set to pay more than the maximum interest rate, it has been revealed.
The British Business Bank, which administers the scheme, introduced an interest rate cap of 14.99 per cent early in June last year.
It said that a small proportion of borrowers who took out loans after CBILS launched in March 2020 – but before the interest rate cap was introduced in June – are paying substantially more interest than would now be allowed.
One loan has been taken out at 34.9 per cent, the highest individual interest rate for a loan under the scheme.
The pandemic support scheme, which is due to end on 31 March 2021, delivers loans of up to £5m to UK businesses with an annual turnover of up to £45m, with the government guaranteeing 80 per cent of the loan’s value.
The borrower does not pay interest on the loan for the first 12 months, as interest and any fees are paid by the government. After the 12-month period, the borrower will start to be charged interest.
Therefore, firms that received CBILS loans in March 2020 will begin repayments in two months’ time.
“Following consultation with ministers, the rate of 14.99 per cent began to be applied for with new accreditations in early June,” said a spokesperson from the British Business Bank.
“As each new lender was accredited by the bank or an existing lender asked for an increase in allocation, lenders were expected to operate within the new rate.
“It is a requirement of the CBILS agreement that the economic benefit of the guarantee are passed on and as a result it was unlikely that lenders would have been able to justify many loans above 14.99 per cent but the cap has now eliminated that possibility.”
The Federation of Small Businesses (FSB), a business trade body, called on the government to intervene if lenders are found to be taking advantage of the Covid-19 support schemes.
“Emergency loan schemes were established to help small firms in need through an incredibly difficult period,” said Martin McTague, national vice chair of the FSB.
“As such, banks should be approaching facilities in a spirit of support and cooperation. Sky-high interest rates would be inexcusable.
“Ultimately, it’s the government underwriting these loans, so if it looks as though lenders are taking advantage, it should intervene.
“What we risk at this point is a cliff-edge moment around April where support measures start to tail off just as debt repayments start to bite. The one-year grace period for emergency loans should be extended immediately.”