Just behave! Ministers warn High Street lenders not to use emergency scheme to help crisis-hit companies after it was revealed they wanted to raise interest rates on loans
- Lloyds, Barclays and HSBC closed a clause that jeopardizes the assets of entrepreneurs
- Personal assets had to be provided as collateral to qualify for a loan
- Barclays apologizes for charging high interest rates for struggling entrepreneurs
Banks were forced to a humiliating refuge last night after ministers warned them not to use an emergency loan scheme set up to support companies hit by crisis.
In a big turnaround, Lloyds, Barclays and HSBC struggled to ditch a controversial clause that forced desperate entrepreneurs to deposit their personal belongings as collateral to qualify for a loan.
This would allow banks to confiscate the assets if the company collapsed and the owner was unable to repay the debt.
Lloyds, Barclays and HSBC (offices shown above at Canary Wharf, London) said the clause will be immediately dropped for loans under £ 250,000.
The banks said the clause will be immediately dropped for loans under £ 250,000, although companies that need to borrow more still have to put personal assets as collateral.
The move followed a response from MPs and small businesses, who were told that the Coronavirus Business Loan Scheme was 80 percent guaranteed by the government.
This taxpayer’s aid is intended to protect banks from losses and encourage them to extend loans to viable companies that have been hit by the Covid-19 pandemic.
In another reversal, Barclays admitted that struggling entrepreneurs charged high interest rates of up to 12 percent on these emergency loans, despite previously denying it.
The bank apologized, saying that the closure of two offices in India meant that the loan price tables had not been updated.
Companies that apply successfully from now on will be offered rates between 2 and 5 percent.
Barclays said, “We apologize for the mistake we made in the interest rates we offered to some companies, and we review all requests from the past few days to ensure that no mistakes are made.”
When asked about complaints that companies were being charged up to 12 percent on the new loans, Downing Street said that banks would be expected to “play their part” in supporting the economy.
The prime minister’s spokesman said Chancellor Rishi Sunak had written bank chiefs to remind them of their responsibilities to support and treat companies fairly.
The letter was also signed by Bank of England Governor Andrew Bailey and Chris Woolard, director of the city’s Financial Conduct Authority, the watchdog.
The Coronavirus Business Loan Scheme was launched Monday as part of a £ 350 billion stimulus package announced by Mr Sunak last week.
Small and medium-sized businesses can borrow between £ 25,000 and £ 5 million for up to six years.
Chancellor Rishi Sunak (photo who took part in national applause for the NHS on Thursday evening) had written to bank chiefs to remind them of their responsibilities to support and treat companies fairly.
The first year is interest-free, with the government withdrawing the bill. But companies applying for the loans have complained that they have been told they are ineligible, saying that interest rates had been increased to 22 percent for a standard commercial loan instead.
Ian Cass, general manager of the Forum of Private Business, which represents approximately 30,000 small businesses, said: “During the financial crisis, these banks were desperate for taxpayers’ money to save them.
“Now that small businesses need help, they’re back in their bad old ways.”
The feud over banks’ behavior came when Chiquito appeared to become the first major restaurant victim of the Covid-19 crisis, at a risk of 1,500 jobs.
The Mexican chain is owned by The Restaurant Group, which has submitted an intention to engage the managers.
The Bank of England also warned of a “very sharp” economic downturn and published a report on the state of the company that described the economic situation as “worse than the 2008 financial crisis.”
Members of the Bank’s Monetary Policy Committee have also warned: “There is a risk that the economy will suffer long-term damage, especially if there are large-scale bankruptcies or if unemployment rises significantly.”