Small firms are being put off taking out Government-backed emergency coronavirus loans due to unfair tactics being used by some lenders, the chairwoman of the Business Select Committee has warned.

Rachel Reeves has written to the Chancellor on behalf of the Business, Energy and Industrial Strategy Committee outlining concerns over the way lenders are “interpreting” the emergency loan scheme.

In the letter to Rishi Sunak, she said there were worries that some lenders were choosing to push their own financial products before the emergency loans, while others are seeking to apply high interest rates once the interest rate-free initial period ends.

It came to light last week that many big lenders were demanding that business owners give personal guarantees that could see their assets being seized, though some have since U-turned on this decision or are waiving this for loans up to £250,000.

Ms Reeves also cautioned that the application process for the Coronavirus Business Interruption Loan Scheme (CBILS) is “cumbersome” for small firms in desperate need, while some lenders are being slow to approach the British Business Bank to access the finance.

She has called on UK banks to “play their part” in helping hard-hit businesses and wants Mr Sunak to clarify the terms and conditions of the scheme.

She said: “The Chancellor’s loan scheme is very welcome and necessary but a number of businesses are coming forward with concerns.

“Giving clearer guidance to lenders so they can ensure SMEs get the right loan to help them through this crisis and encouraging lenders to look for alternatives to personal guarantees will be important in ensuring CBILS delivers for businesses up and down the country.”

She added: “Banks were kept afloat by government and taxpayers during the financial crisis – I would urge them to play their part in helping small and medium-sized businesses through this crisis.”

The coronavirus loans scheme is designed to offer companies up to £5 million interest free for the first year to help shore up their businesses.

The Government has pledged to underwrite 80% of the risk of the bank loans as an incentive for banks to lend to firms in difficulty.

Banking giant Barclays was last week forced to backtrack over demands for personal guarantees on the loans – up to £250,000 – after outcry.

HSBC also said it did not require personal guarantees for loans up to £250,000, but reviews the terms of larger loans on a customer-by-customer basis.