Barclays has apologised for charging struggling business owners interest rates of up to 12% on emergency loans. The bank, along with Lloyds and HSBC has also ditched a clause that put business owners’ assets at risk.
Banks were forced into a humiliating retreat last night after ministers warned them not to exploit an emergency loan scheme set up to support crisis-hit firms.
In a major U-turn, Lloyds, Barclays and HSBC scrambled to ditch a controversial clause forcing desperate business owners to put down their personal assets as collateral to qualify for a loan.
This would have allowed banks to seize the assets if the company collapsed and the owner was unable to pay back the debt.
Lloyds, Barclays and HSBC (offices pictured above at Canary Wharf, London) said the clause will be dropped immediately for loans less than £250,000.
The banks said the clause will be dropped immediately for loans of under £250,000, although firms that need to borrow more may still need to put down personal assets as collateral.
The move followed a backlash from MPs and small firms, who had been told the Coronavirus Business Loan Scheme was 80 per cent guaranteed by the Government.
This taxpayer backing is meant to protect banks from losses and encourage them to lend to viable companies plunged into difficulty by the Covid-19 pandemic.
In another reversal, Barclays admitted it had been charging struggling business owners high interest rates of up to 12 per cent on these emergency loans, despite denying it previously.
The bank apologised and said the closure of two offices in India meant its loan pricing tables had not been updated.
Companies that apply successfully from now on will be offered rates of between 2 per cent and 5 per cent.
Barclays said: We sincerely apologise for the mistake we made on the interest rates we offered to some businesses, and were reviewing all applications from the last few days to ensure that no errors are made.
Asked about complaints that firms were being charged up to 12 per cent on the new loans, Downing Street said the banks would be expected to play their part in helping to shore up the economy.
The Prime Ministers spokesman said Chancellor Rishi Sunak had written to bank chiefs to remind them of their responsibilities to support firms and treat them fairly.
The letter was also signed by Bank of England Governor Andrew Bailey and Chris Woolard, chief executive of the Financial Conduct Authority, the City watchdog.
The Coronavirus Business Loan Scheme was launched on Monday as part of a £350billion stimulus package announced by Mr Sunak last week.
Small and medium-sized firms can apply to borrow between £25,000 and £5million for a maximum of six years.
Chancellor Rishi Sunak (pictured taking part in the national applause for the NHS on Thursday night) had written to bank chiefs to remind them of their responsibilities to support firms and treat them fairly.
The first year is interest-free, with the Government picking up the bill. But firms applying for the loans have complained of being told they do not qualify, and said they had instead been quoted interest rates of up to 22 per cent for a standard commercial loan.
Ian Cass, managing director of the Forum of Private Business, which represents about 30,000 small firms, said: During the financial crisis these banks were desperate for taxpayers money to bail them out.
Now small businesses need help, they are back to their bad old ways.
The row over the banks behaviours came as Chiquito looked set to become the first major restaurant casualty of the Covid-19 crisis, putting up to 1,500 jobs at risk.
The Mexican chain is owned by The Restaurant Group, which has filed a notice of its intention to call in the administrators.
The Bank of England also warned of a very sharp economic downturn, and published a business condition report that described the economic situation as worse than the financial crisis in 2008.
Members of the Banks interest rate-setting monetary policy committee also warned: There is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment.’