British Steel could fall into administration as soon as Wednesday, putting 5,000 jobs directly at risk and endangering thousands more in the supply chain, after talks to secure an emergency £30m loan from the government stalled.

The UK’s second-largest steel producer is on the verge of collapse following inconclusive talks with the business secretary, Greg Clark. Accountancy firm EY has been lined up as administrator if it goes under.

British Steel, which is owned by the private equity group Greybull Capital, has been scrambling to assemble a rescue package to stave off insolvency. Greybull and the company’s lenders have agreed to inject £30m into the company, but the British government has been asked to provide a further £30m.

Andrew Stephenson, a junior minister at the Department for Business, Energy and Industrial Strategy (BEIS), refused to give details about the talks in parliament on Tuesday afternoon, but said the government would “leave no stone unturned” in trying to find a solution. However, he ruled out nationalisation of the company, adding that the government had to work within EU state aid rules.

“Nationalisation is not the solution here. If this business was nationalised the exact same domestic and European law would apply,” Stephenson said. It is understood that Clark left talks with British Steel on Tuesday evening.

A spokeswoman for British Steel declined to comment on progress of the funding talks. The company said British Steel workers would be paid their salaries for May, despite the firm’s predicament.

Quick guide What went wrong at British Steel? Show Hide What plans does Jingye have for British Steel? Jingye's financial profile is relatively opaque, but the company is expected to pledge investment worth £1bn over the next decade. A person briefed on Jingye's thinking said the company wanted to preserve as many jobs as possible, but could not say how many of the company's 4,000 workers would keep their jobs. British Steel accounts for a third of UK production, so is seen as a key national asset in many quarters.

What went wrong at British Steel? When Greybull Capital bought British Steel in 2016 it promised great things. The private equity firm pledged to invest £400m and within months it was boasting of a return to profit and a bright future ahead. Three years later it collapsed. In a letter to staff, the British Steel chief executive blamed weak market demand, high raw material prices, the weakness of sterling and uncertainty over the outcome of Brexit discussions. Who is Jingye? Jingye emerged as the most likely owner after talks with Ataer, a division of the Turkish military pension fund Oyak, fell through in October. Founded in 1988 by a former Communist party official, Li Ganpo, the Chinese conglomerate has hotel and retail interests. However, steelmaking, which it started doing in the early 1990s, is now its primary focus: its Chinese mills produce about 15m tonnes of steel a year, exporting to 80 countries. How much is Brexit to blame? It is not the only factor in the crisis, but it is important and will remain crucial even if Jingye buys British Steel. Steel contracts are typically agreed well in advance of the product being delivered. As things stand, the UK is due to leave the EU on 31 January after another delay, and the terms of that separation are yet to be agreed, meaning British Steel’s overseas customers do not know what tariffs will apply to steel they buy from the company. Sources close to the company said orders from customers in the EU and further afield had dried up as a result. Is the whole UK steel industry in trouble? The UK steel industry has been in decline for some time because of a variety of factors such as overcapacity in EU steelmaking and Chinese state-subsidised firms flooding the global market with cheap product. An industry that employed 323,000 people in 1971 now employs less than a tenth of that, at 31,900. The closure of the Redcar steelworks in 2015 was a significant blow to the sector and left the UK with only two blast furnace steelworks: Scunthorpe and the Tata Steel-owned Port Talbot in south Wales.

British Steel has blamed Brexit for the squeeze on its finances, adding to the pressure on the government ahead of European elections on Thursday. Union sources said British Steel had lost 25% of orders at its Scunthorpe plant because of Brexit uncertainty. EU buyers would have to pay tariffs of 20% on British Steel’s products if the UK left without a deal.

British Steel employs about 5,000 people, including more than 3,000 at its main site in Scunthorpe, Lincolnshire, and supports 20,000 more in the supply chain. The Scunthorpe plant is one of two blast furnace steelworks left in the UK, which make steel from raw materials, with Indian-owned Tata Steel owning the other site at Port Talbot in south Wales.

Facebook Twitter Pinterest Gill Furniss, the Labour shadow minister for steel, said: British Steel going into administration would be ‘devastating’ and called on the government to intervene. Photograph: Joe Giddens/PA

Greybull, which specialises in turning around struggling businesses but failed to save Monarch Airlines from collapse in 2017 after taking over the struggling carrier three years earlier, paid a nominal £1 to the loss-making company’s previous owner, Tata Steel, in 2016, and renamed it British Steel.

Under Greybull’s ownership British Steel turned a profit within a year, but has since faced a variety of issues, including the weaker pound and energy costs in the UK, which the industry says are uncompetitive. The company lost £19m in the year ending in March 2018, according to its latest accounts. Under a scheme to support large industrial users the business department has paid out between €20m and €50m (£18m and £44m) to British Steel since the start of 2017.

Since taking over British Steel, Greybull has been paid £9m in management fees by British Steel. The west London-based private equity firm is owned by brothers Marc and Nathaniel Meyohas. Greybull has also charged accrued interest worth £33.8m on its loans to British Steel, although this has not been paid by the ailing company.

The latest crisis comes less than a fortnight after the government provided British Steel with an emergency £120m loan to cover a bill from the EU for its carbon dioxide emissions.

Labour and Unite, the UK’s largest trade union, called for the government to be prepared to nationalise the company.

The Labour leader, Jeremy Corbyn, said: “If an agreement cannot be struck with British Steel, the government must act to take a public stake in the company to secure the long-term future of the steelworks and protect peoples’ livelihoods and communities.”

Steve Turner, Unite’s assistant general secretary, said: “While Unite is in continuing dialogue with British Steel and the UK government, we are very clear that if a deal cannot be struck to secure the long-term future of the steelmaker under private ownership, that the government must bring it under public control in the national interest.

“It is a national asset supporting UK plc that cannot simply be left to the market.”

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Alasdair McDiarmid, the operations director for the union Community, said: “The public should know that if British Steel were liquidated, on top of the devastation of yet more steel communities, the clean-up costs for the industrial sites could end up costing taxpayers hundreds of millions of pounds. Pragmatic decisions in the coming days could avert another industrial disaster”