Double-digit interest rates levied on firms

Mar 16 2009 By William Green, The Journal

MINISTERS have been accused of allowing "loan shark" rates for North East firms trying to secure Government-backed loans to beat the recession.

Business Secretary Lord Mandelson unveiled a £1.3bn enterprise finance guarantee (EFG) scheme to help smaller companies struggling to get credit with great fanfare in January.

The scheme works through High Street banks, several controlled by the Government, and more than 400 loans worth more than £40m have been offered.

But the Government has been unable to say how many North East firms have got funding.

And a leading North East businessman has now blasted the "draconian" scheme, claiming company directors are having to exhaust every other resource first – and even put their homes up as security.

Hugh Morgan Williams, chairman of the Washington-based Canford Group and a senior CBI member, also said companies faced interest rates of between 10% and 12% despite the current base rate being just half a percent. Senior North East Tory peer Michael Bates said the Government was allowing "loan shark" rates and is demanding answers from Lord Mandelson in Parliament.

Liberal Democrat leader Nick Clegg and Ken Clark, Tory shadow Business Secretary, questioned whether the Government was trying to hide the scheme’s "failure" by not releasing regional data.

Speaking to The Journal, Mr Morgan Williams said: "The average cost is approaching 10 to 12% interest rates. That is what firms are being asked to pay.

"And this finance is only available to companies where directors have exhausted their own resources, including pledging their houses as security."

He added: "Businesses which are offered such facilities have the choice between taking that money or radically cutting capacity in those businesses by making redundancies and stopping new product development."