Neil and David Taylor, right, owners of Port Medway Marina

by business editor Trevor Sturgess

A father and son who run a marina business are anxiously awaiting a ruling on the alleged miss-selling by banks of an interest rate swap product they claim has cost the firm millions of pounds.

Port Medway Marina. based in Rochester and founded by David and Neil Taylor, is one of many enterprises complaining about the product that cost "an absolute fortune" when interest rates fall.

The Taylors say the impact has been horrendous. Their situation is being investigated by the Financial Services Authority (FSA).

Although most banks sold similar products, the Taylors took out their loan with Barclays in 2006.

It had been a flourishing business for 20 years until the bank persuaded them to take up the complex product alongside a business development loan.

Between 2003 and 2006, base rate rose from 3.75% to 5.75%. But a few years later, following the credit crunch and widespread financial collapse, it had plummeted to the present 0.5%.

Kalvin Chapman, a solicitor with Berg, a law firm fighting Port Medway’s case, said the products were sold to small and medium enterprises (SMEs), many “unsophisticated” in their financial expertise, in the bank’s own interest, not the client’s.

“They shoved it down SME throats like PPI [payment protection insurance],” he said. “As soon as interest rates go down, the amount you pay under an interest rate swap goes up."

He said that apart from the product costing “an absolute fortune” if rates dropped, banks also imposed a high exit fee.

The Taylors estimate that they have lost business worth as much as £15m because escalating repayments curbed their ability to invest for growth.

Neil Taylor said: “The swap we took out in 2006 effectively stopped us being able to borrow the money required to grow the business.

"Due to the excessive extra costs from the swap it also meant that we couldn’t move to another bank which would give us the money we needed to grow.

“The impact has been horrendous. Not only could we not grow the business, we have had to lay off staff, sell off assets cheap, and try to find ways to cover our cashflow.

“This all started when some ‘experts’ came down from London who apparently knew everything about these products; they forced us into taking this product as part of the new funding we required at the time.”

The Taylors and their advisers believe the business could have been double its current size of six staff and £500,000 turnover had they not been anchored down by the interest rate swap.

The FSA is due to rule tomorrow. Mr Chapman said: “My dream outcome is that the FSA will force the banks to do a proper and realistic review of the scale of damage the hedging products have done to business. The damage has been catastrophic.”

A Barclays spokesman said: "Barclays has an ongoing dialogue with the management team at Port Medway and continues to work with them to support their company through challenging market conditions.

"When we receive the FSA's approval, we will launch the review for eligible customers. Where we did not uphold the highest standards, we will put things right."