(Bloomberg) -- U.K. banks are coming under fire for terms they're demanding on loans the government put in place to keep small businesses afloat during the coronavirus pandemic.
Barclays Plc offered an interest rate of as much as 12%, according to Patrick Macnamara, a former City trader turned entrepreneur in London. The bank then lowered it to between 2% and 5%, he said. Other lenders have also said their interest rates will depend on the circumstances of the borrower.
On top of the prohibitive rates, Lloyds Banking Group Plc and Banco Santander SA's U.K. unit might ask for personal guarantees on loans exceeding 250,000 pounds ($305,000), people familiar with the matter said.
“I was totally shocked,” said Macnamara, who created a website to compare these interest rates. “It's absolutely outrageous. The U.K. government said it would have made us safe but then commercial banks want to charge a 12% interest rate.”
A Barclays spokesperson said it has removed the personal guarantee requirement for loans up to 250,000 pounds and described the initial rate quoted to Macnamara as a pricing error. The bank said all rates on those loans will be between 2% and 5%.
Royal Bank of Scotland Group Plc said on Thursday it won't require customers to back their coronavirus loans with personal assets.
The U.K. government's so-called Coronavirus Business Interruption Loan Scheme, or CBILS, has attracted critics for being too reliant on commercial banks and their traditional underwriting methods to rapidly deliver cash to desperate companies.
Read more: U.K. business rescue plan ‘too complicated' to stop mass failure
The program, started Monday by the state-owned British Business Bank, will facilitate emergency loans to companies with less than 45 million pounds in annual sales by guaranteeing 80% of the debt for lenders. Banks bear the risk for the difference. Borrowers don't have to pay interest or fees for 12 months and the loans will be capped at 5 million pounds and six-year terms.
About 40 lenders are taking part in the initiative.
Small- and medium-sized companies account for three of every five workers in the U.K. and about half the revenue in the private sector. Rishi Sunak, the chancellor of the exchequer and architect of the government's overall business rescue package, has ensured banks have money at stake so they'll lend responsibly.
But Macnamara said that with the rates the U.K. banks are offering, “you can be bankrupt in a month.”
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