Taxpayers are bearing the brunt of hefty interest rates and arrangement fees charged by lenders providing emergency loans for struggling businesses.

The Sunday Times reported that some specialist lenders are charging fees as high as five per cent of the whole loan, and in some cases charging interest rates as high as 15 per cent.

Read more: Exclusive: MPs call for clarity on Bounce Back Loan replacement as lenders shut door on SMEs

Under the Treasury-guaranteed coronavirus loan schemes, interest rates for the first year are covered by taxpayers.

The Coronavirus Business Interruption Loan scheme (CBILS) has thus far provided over £17bn in funding to over 73,000 applicants.

80 per cent of the loan is covered by the Treasury, with lenders guaranteeing the remaining 20 per cent.

Under the terms of the programme, lenders can set their own interest rates up to 14.99 per cent.

Before the Open newsletter: Start your day with the City View podcast and key market data

As a result, the Sunday Times reported, major differences have emerged between high street banks and alternative lenders such as ThinCats.

Some are concerned that the high rates may lead to some businesses going bust after the first year.

Treasury select committee chair Mel Stride said: “We will particularly want to satisfy ourselves that the higher rates charged by the banks [for CBILS] are justified.”

But others argued that the higher rates reflected the extra risk in handing out such loans.

Read more: Government risks ‘wasting taxpayer money’ through emergency loan schemes

MPs will hold a debate on the topic on Thursday.

Between April and June, figures from the British Business Bank (BBB) showed that the government had paid nearly £66m in interest to lenders.

Source Google News