Double-digit interest rates levied on firms
Mar 16 2009 By William Green, The Journal
Mr Morgan Williams also revealed that he knew of two businessmen in the region who had looked at the scheme, but been put off by the level of security required and interest rate charged – and did not know anyone who had taken it up.
Lord Bates said: "They are loan shark rates. The base rate is 0.5% so how do you get interest rates of 12%? "What it is going to do is fling businesses already in trouble into further debt and it is a real tragedy." He added: "This is something that I am going to table a Parliamentary question on to ask the Secretary of State by region where this £40m has been allocated so far.
"It is very important in that the North East is in greater need and so should get a greater proportion of the pot."
A spokesman for the Department for Business said: "Pricing of loans is a commercial matter for lenders. As with any purchase the borrower is entitled to approach a range of lenders."
But he added it was previously announced there was a 2% premium for the scheme, to reflect the Government guarantee, although there was a 25% discount for the first year reducing it to 1.5%.
The spokesman stressed the Government guarantee was provided to the lender, with the borrower still responsible for repaying the loan.
He added banks could take unsupported personal guarantees under the scheme, which means the customer promises to repay any loan provided to their company without having to provide collateral.
He insisted lenders were not permitted to take any direct charge against an individual’s main home in connection with an EFG loan – but the Federation of Small Businesses (FSB) questioned this.
John Wright, national FSB chairman and regional vice-chairman, said: "They may not be allowed to do it, but certainly the reports we are getting back from our members is that banks are still asking for additional security."
