Banks missing Project Merlin small business lending targets

7 Nov, 2011 Insurance News Business Lending Business Lending Targets Lending Targets Targets

New figures released by the Bank of England show the big banks are missing the small business lending targets they agreed with the Government under “Project Merlin”.

One of the agreements the Government struck with the big banks under the accord known as Project Merlin, was that they would provide £190 billion of credit to businesses in 2011, with £76 billion of the total to be lent to small and medium-sizes enterprises (SMEs).

Nine months into the agreement figures show the major banks have so far lent £56 billion to small businesses. This means they remain some £1 billion short of target, a similar shortfall to the lending figures announced after 6 months of Project Merlin.

However, the banks are well ahead of their target for the amount of loans made available to large businesses, with some £158 billion loaned to date against the £143 billion goal at the three-quarter stage.

Banks must lend more to SMEs

The Treasury welcomed the figures for lending to large businesses but warned the banks they needed to do more for small businesses. A Treasury spokesperson saying, “It’s encouraging that today’s provisional results show that UK banks have loaned over £157 billion pounds so far this year, which is 11% above target.

“While banks have lent over 10 percent more to SMEs compared with this point last year, they must do more to ensure that they meet their Merlin commitments for the full year.”

The amount of credit available to small businesses has become a major concern for the Government. Small businesses say that it is very difficult to get business loans on reasonable terms and at competitive rates of interest, and that the lack of credit is stifling their efforts to expand. But the banks insist that loans are available to small businesses, it’s just that demand for loans is low because of the economic climate.

BofE figures confirm tight credit conditions for small businesses

The Bank of England’s September ‘Summary of Business Conditions’ report seemed to come down on the side of small businesses when it gave its analysis of the credit conditions for small businesses;

“Small businesses and start-ups still found it difficult to gain access to credit, and where loans were available, fees remained elevated and the applications process was often drawn out. Concerns about the withdrawal of overdraft facilities at short notice had led some small firms to run permanent sizable cash balances, inhibiting investment. And contacts in sectors such as retail, which faced weak demand conditions, also often struggled to secure finance.”

Credit easing plan to help small businesses get loans

The recent announcement by George Osborne of plans for a credit easing scheme, to ensure small businesses can access the loans they need, is a clear indication the Government feels that the banks aren’t delivering the credit small firms desperately need.

The Chancellor was unequivocal saying, “Everyone knows Britain’s small firms are struggling to get credit and banks are weak. So as part of my determination to get the economy moving I have set the Treasury to work on ways to inject money directly into parts of the economy that need it such as small businesses. It’s known as credit easing.”

With recent research revealing small businesses (less than 100 employees) are responsible for creating 65% of all new jobs created in Britain, it’s vital for the UK economy that small firms can access loans to fund their growth and create desperately-needed employment.

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