A multibillion-pound small business loan scandal was fuelled by bank salesmen earning up to £1 million a year for meeting aggressive profit targets, The Herald can reveal.

Interest rate swap agreements (IRSAs), promoted by banks to small businesses as a protection against rising interest rates, were part of a sales bonus structure designed to maximise bank profits, a former high-flying salesman has disclosed.

Hundreds of Scottish small businesses are among those damaged by IRSAs.

Today, the controversy will be debated in the Commons after pressure from 100 MPs, ahead of an imminent review by the Financial Services Authority.

An investigation by The Herald this month found that businesses across the UK could be paying an extra £10 billion to their banks for IRSAs, threatening up to 80,000 jobs and stifling economic recovery.

Now Abhishek Sachdev, who spent eight years as a senior derivatives salesman at Lloyds, has disclosed how IRSAs were sold.

Mr Sachdev, whose business Vedanta Hedging now advises mis-sold clients of leading banks, said: "There is nothing wrong with hedging your interest rate but the banks have been able to take advantage because it is so very profitable."

He said relationship managers were incentivised to introduce business customers to colleagues in the investment banking division. He added: "Relationship managers were on £50,000 to £60,000 a year, but the person he was introducing to the client was typically getting paid five or six times as much. Earnings could go as high as £750,000 or £1m."

He added: "The sales guys work in a department called 'financial and market sales' but when they are introduced to the client their business card calls them 'risk manager'."

Each relationship manager would have a target for IRSA income, which might be £100,000 for the year, while the salesman's target might be £2m from 20 managers.

Mr Sachdev said: "A normal five-year swap would still make a £20,000 or £30,000 profit instantly for the bank. But for salespeople there was an incentive to sell a hedge that was longer than the loan – a 30-year swap made £300,000. If you are a salesperson with a target of £2m of income a year to generate, you are going to do everything possible to generate it. Similarly, the client would be given a £1m loan but a £2m hedge ... the client isn't going to say anything, the relationship manager is going to be happy and compliance was happy."

He added: "The salesman would show the client the benefit of a bigger swap, but didn't say that if interest rates fell, he would be massively more hindered. With a 30-year swap he is now 3000% worse off."

A bigger profit could be extracted in three ways – selling a swap agreement which lasted longer than the agreed loan, selling one covering more borrowings, or selling one which was unnecessarily complex.

A spokesman for RBS said any sales incentives were part of normal business operation, and were not excessive.

On salesmen's earnings, a Lloyds spokesman said: "We do not recognise these numbers."

The British Bankers Association said: "Interest rate swaps are regulated and banks have strict guidelines and rules."