Although the five main banks lent more to business overall than was required by the government’s lending scheme ‘Project Merlin’, they did fail in one aspect in that lending to small businesses came up short by just over Â£1 billion.After the credit crunch in 2007/2008 the banks were blamed for many viable businesses going under because they would not lend to them. As a result the government set up an agreement with the banks last year, Project Merlin, whereby the banks would lend a total of Â£190 billion to business with Â£76 billion of it targeted at small firms.
Last year the Project Merlin banks lent out a total of Â£214.9 billion, which is 13.1% above their target, but only Â£74.9 billion found its way to small businesses, 1.5% short of target. But this is an improvement on the previous year’s Â£66 billion.
A spokesman for the banks said ‘The Merlin banks have met their overall business lending commitments. This performance demonstrates the banks’ commitment to providing businesses with the financial support they need to invest and grow and the significant progress made this year.’ But then went on to blame the missing of the small business target on a lack of demand pointing to the Bank of England Credit Conditions Survey 2012, which said ‘the demand for credit from small businesses has declined in three out of four quarters in 2011’. And ended with ‘The bank’s efforts to encourage customers to come forward with borrowing proposals are set against this overall challenging economic environment. The business demand for credit remains weak’.
But some small businesses who have been unable to gain funding may want to disagree. And John Walker, the national chairman of the Federation of Small Businesses said that the results were ‘extremely disappointing’ for small businesses. He went on to say ‘It is even more disappointing, given that the Project Merlin targets were set artificially low in the first place.
Perhaps if the banks were to lower the cost of borrowing and play fair by the small business community then more money would be lent.
As it is, more than a third of FSB members feel that they have missed their growth opportunities and fear being uncompetitive as a result of not being able to access finance.’
Labour jumped on this single target miss of 1.5% and said that Project Merlin had failed. The Shadow Business Secretary, Chuka Umanna, said that this would add ‘insult to injury’ to smaller firms that were experiencing difficulties at the moment. ‘The Project Merlin deal lacked any teeth, having been put in place without any mechanisms for enforcement or sanctions in the event that its targets were not met. Project Merlin lies in tatters and it is clear that its promises were not worth the paper they were written on.’ He said.
Although the overall figures look good the system measures gross lending, not just new net lending as well as measuring credit facilities being made available not just money actually lent out. So many, such as the LibDem peer Lord Oakeshott who resigned over this affair last year, dismiss the results as misleading.
Although the government looks unlikely to renew this agreement for the coming year the banks have said that they remain fully committed to supporting businesses. The Chancellor, George Osborne, also looks like making the Â£21 billion ‘credit easing’ scheme the way forward for lending to small businesses. This will keep the costs of the loans down because the government (taxpayer) will be providing guarantees for the loans.
The Project Merlin figures are expected to be confirmed by the Bank of England on Monday.