Biotech boss Sir Christopher Evans says he was "shocked and dismayed" to have become the third man arrested over the "cash for honours" allegations.
Sir Christopher Evans: Became third man arrested in on-going probe
He was questioned on Wednesday before being released on bail.
He said there had been no need for the police to arrest him as he was happy to provide them with any information.
"If I thought for one moment I would be placed in this embarrassing and mind-boggling position I wouldn't have made the loan," he added.
Police are investigating whether anyone has been nominated for honours in return for making donations, or giving loans to political parties.
The probe was prompted by the fact that a number of people who had made large - undisclosed - loans to Labour before the 2005 election were subsequently nominated for peerages.
But all of those who lent money, and the big political parties, have rejected any suggestion that they have broken any laws.
Sir Christopher was one of the millionaires who loaned money to Labour, although he was not known to be on any list of people who were nominated for peerages.
He said: "I am extremely frustrated to be placed in this situation as a result of what I believed to be a straightforward commercial loan to the Labour Party to assist them with their cash flow for the last election campaign.
"I never made a secret of the loan and if I had been asked at any time whether I had made a loan would have confirmed the fact. My record as a long-standing Labour donor and supporter was there for all to see.
"I made the loan... because I was not prepared to make such a substantial donation... I made it clear that the money would be a commercial, interest-bearing loan which was to be repaid in full and that remains the case.
"I am proud to have been honoured twice in the past by both Conservative and Labour Governments for my work in the medical biosciences sector. That is the only basis on which I would accept any honour."
Sir Christopher, who is from Port Talbot in south Wales, has established at least 20 science-based firms valued at over £1bn, employing more than 2,000 people.
He has been actively involved in many government biotechnology initiatives and is a member of the Prime Minister's Council for Science and Technology. He was knighted in 2001, having been made an OBE in 1995 for services to biotechnology.
Officers have also interviewed Labour's chief fundraiser Lord Levy, who denies any wrongdoing, for a second time in London and he has been bailed.
Lord Levy was initially arrested on 12 July and interviewed by officers from Scotland Yard.
Lord Levy's spokesman said on Wednesday: "Lord Levy returned as requested to meet the police today to help them with their ongoing investigation."
When he was first arrested there were calls for him to be sacked from his role as Mr Blair's personal representative in the Middle East, despite not having been charged with any offence.
And there had been widespread speculation that the prime minister himself may face questioning.
Of Lord Levy, Prime Minister Tony Blair's official spokesman said he remained "a valued adviser to the Prime Minister on the Middle East".
The Prime Minister's spokesman said he refused to "give any running commentary" on Sir Christopher.
Lord Levy was the second person to be arrested in connection with the inquiry.
Head teacher Des Smith, who was arrested and bailed in April, was the first.
Mr Smith was on the council of the Specialist Schools and Academies Trust (SSAT).
He resigned from the trust after allegedly telling an undercover Sunday Times reporter it was typical for people who made donations to the project to get an honour.
The trust, whose president is Lord Levy, helps the government to recruit sponsors for specialist schools.
In relation to academies, it says its main role is to help them raise academic performance once they are open and to advise existing sponsors rather than recruit new ones.
The allegations of wrong-doing have been denied by all involved.