Since 2004, the Carbon Trust has dished out £160m in government-funded interest-free loans to SMEs for investment in carbon reduction measures.
But customers with loans in the pipeline have now been told that commercial rates of between 5% and 10% will apply and that the loans will be run by the trust in conjunction with Siemens Financial Services.
Independent retailer Andrew Thornton had a loan lined up to fit doors to chiller cabinets and cut energy usage by 15% at his Crouch End Budgens store. He has now been told he will have to repay the loan at a 9.7% interest rate.
In a letter to his local MP, Lynne Featherstone, Thornton described the move as outrageous. "The banks won't lend, so I feel I am forced into a 'rip-off' rate at the Carbon Trust," he added.
Fellow Top 50 independent Jonathan James, MD of James Graven, said a 9.7% interest rate was "ridiculous". "That's just loopy, mega-money," he said.
James, who is to become chairman of the ACS in November, warned the move would put off some retailers from investing in greener equipment. "I've borrowed on a Carbon Trust loan before, but at 9.7% I wouldn't even consider it," he said. "I feel it's a disincentive."
The Carbon Trust said it had been forced to pull the interest-free loans after suffering funding cuts from the Department of Energy and Climate Change.
"Our funding dropped by 40% this year and we're seeing even more significant reductions and pressures on our funding," said Myles McCarthy, MD of Carbon Trust Implementation.
He added that the new scheme would allow businesses to take out multimillion pounds loans far bigger than before while still ensuring that monthly repayments did not outweigh energy savings.