Chai Patel, the head of the Priory rehab clinics and a Labour nominee for a peerage, lent the party £1.5m last summer, the BBC has learned.
Dr Chai Patel has donated and loaned money to Labour
The Lords Appointment Commission, which vets nominations for peerages, is said to be against Dr Patel's candidacy.
Dr Patel said he made the loan last summer following a request, but never expected anything in return.
The Labour Party defended the loan, saying rules set by the commission had been strictly adhered to.
The commission said it would expect to be told about any links that could be seen to influence a recommendation.
But a spokesman said the independent body would not comment on individual cases.
The BBC understands that the loan is still outstanding and was made at commercial rates.
Dr Patel has also given a total of £100,000 to Labour.
He said he has been angered by what he sees as the leaking of his candidacy by the commission and has called for transparency.
Dr Patel, whose name was submitted by Downing Street for a peerage two months after the loan, said he would not have lent the party the money if he had imagined that the financial support would create such criticism.
The Labour party donor was cleared of misconduct charges by the General Medical Council last year.
LORDS' APPOINTMENT COMMISSION
Set up by the Queen to oversee appointment of peers on merit
Asks the public to nominate themselves or others and then assesses the nominee
It has seven members, three of which represent the major political parties
It has appointed 29 peers since 2001
Source: House of Lords Appointment Commission
He had faced being struck off after being accused of running a care home in which elderly patients were allegedly mistreated.
But following a hearing last summer, the case was dropped after insufficient evidence was produced and he was cleared of professional misconduct.
Recent reports stated that the commission told Tony Blair to withdraw his nomination.
They prompted Dr Patel to write a letter to the commission, asking for reasons for its reported objection to his appointment and saying his reputation was being traduced.
Reports also claim the commission is unhappy about several other nominees.
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."