Labour has denied any wrongdoing amid further controversy over peerages offered to businessmen who have helped the party financially.
Dr Chai Patel told The Sunday Times yesterday he had made a £1.5 million loan just weeks before being nominated for a peerage.
He rejected any suggestion that he had been offered anything in return for the money, which as a loan did not have to be publicly declared.
But the Priory Clinic boss launched another attack on the running of the honours system following revelations that his nomination might be blocked by a watchdog.
The public had "a right to be sceptical" he told the newspaper - which claimed Labour encouraged the use of loans to a void suggestions of "cronyism".
So long as they are repaid at commercial rates, such contributions to party coffers escape the need for declaration to the Electoral Commission, unlike large donations.
Dr Patel said: "I am very sad that, whatever happens from here, I am linked to an event which has got nothing to do
with the things I believe in, but has been reduced to a bazaar where people are saying 'what was the price of the peerage?'."
Asked if he had made the loan in the expectation of a peerage, he said: "Absolutely not. If they had said 'you will get this by signing this', I would have walked out of the room."
A Labour Party spokesman said: "There is nothing wrong with donating or lending money to a political party as long as the rules are strictly adhered to.
"The issue here, regarding the loans that they have made, is whether the strict rules set by the Electoral Commission regarding the declaration of loans that have been made at a commercial rate, have been fully observed.
"They have. It has been suggested that these loans were made at a preferential rate. That is absolutely not the case."
Dr Patel is one of three donors reported to have been blocked by an honours watchdog from getting a seat in the Lords.
Last week he broke the usual silence of nominees and wrote to the Appointments Commission demanding to know why it was rejecting his nomination. Former independent MP Martin Bell told the paper that honours were being "bought and sold on a scale unknown since the days of Lloyd George".
Trade Secretary Alan Johnson said the Government had a record of being "open and transparent" over donations and rejected any suggestion of corruption.
"In this country - and I think this applies to all parties - I think we are free of the kind of corruption we have seen elsewhere.
"We have done things like appoint the House of Lords Appointments Commission and other measures to try to ensure we are as transparent as we possibly can be.
"You really can't be much more open and transparent than that."
He added: "I do not accept there is anything wrong with people donating to political parties.
"We actually introduced the measure which said every donation that was over £5,000 has to be declared.
"There is nothing wrong with people offering loans to political parties if they are on a commercial basis and these loans, as far as I understand, were on a commercial basis."