Government warns banks not to rip off businesses seeking state-backed loans to get through coronavirus crisis
The government have urged banks not to exploit businesses seeking the emergency cash
The Government has warned banks not to rip off businesses seeking state-backed loans to support them through the coronavirus outbreak.
Chancellor Rishi Sunak, the governor of the Bank of England and boss of the Financial Conduct Authority wrote to the heads of the biggest banks making clear their concerns.
They said: "The priority for all of us - banks, building societies, government and the financial authorities - should now be to take all action necessary to ensure that the benefit of the measures... are passed through to business and consumers," they wrote
"This will require a willingness to maintain and extend lending despite the uncertain economic conditions."
The move came after it was claimed that banks were insisting on personal guarantees before they would provide cash under the business interruption loan scheme
Mr Sunak announced last week the Government would back interest-free loans of up to £5m for 12 months to help see firms through the crisis, with banks covered for up to 80% of the losses if the businesses are unable to pay.
But despite government assurances and rock bottom interest rates, MPs claimed some "profiteering" banks were demanding 12% interest on the money after the first year.
In a warning to the lenders, the Prime Minister's spokesperson said the conditions of the loans must ensure that any businesses which were viable before the crisis must be allowed to remain in business after.
"Under the business interruption loan scheme, government will not charge businesses a guarantee", they said.
"In addition the Government will cover the first 12 months of interest costs. The banks also need to play their part.
"They should be ensuring the benefits of the support set out by the Government and the Bank of England are passed through to businesses and consumers. We must make sure firms whose business models were viable before this crisis remain viable once this crisis is over."
Meanwhile, the spokesperson also said banks were "not allowed" to ask for homes to be put up as collateral against the loans.
Labour's Shadow Business Secretary, Rebecca Long-Bailey, urged the Government to take further action against the banks as she warned the restrictive conditions could dissuade business for applying for the emergency cash.
"It is outrageous that many banks are loading all of the risk of Government-backed loans onto struggling business, despite public guarantees that protect lenders for up to 80 per cent," she said.
"The Government are protecting banks but not demanding any protection for businesses in return. This must change immediately.
"Banks were responsible for the last financial crisis, they must not be allowed to hinder public efforts to shore up our economy through this crisis."