Project Merlin is not very magical for SMEs

The agreement worked out between the government and England’s big banks, called Project Merlin, was intended, amongst other changes, to guarantee greater financial support for business, particularly

SME’s or small and medium size businesses.  With the latest figures released from banks who signed the agreement, it appears that although lending targets have been met in theory, small business is still not getting the needed support.

High street banks including Barclays, RBS, Lloyds and Santander made a commitment in February this year to loan a total of at least £190 billion to business during 2011, with £76 billion of that specifically allocated to businesses with an annual turnover of less than £25 million.  Those are the ‘small and medium’ ones that are considered to be the backbone of the British economy by economists and politicians alike.

Bank of England recently released figures showing that the banks had lent a total of £157.5 billion as of the end of the third quarter of 2011, which is about 11% ahead of the target for that date.  However, lending to SME’s in that period fell short of its £57 billion target for the same period by approximately £1billion.

The banks’ stance on the issue is that small business owners are not applying for additional funds and credit because they fear the uncertain state of the economy and don’t want to take added risks.  Basically, they say that the money is available to businesses that haven’t taken advantage of it.

Others like John Walker, Chairman of FSB, have a different take on things.  Mr Walker said that while banks may be ‘on target’ in overall lending, they are not doing the job that’s needed most, which is making working capital available to small businesses at rates and terms they can live (and grow) with. He also noted that five banks control 85% of the financial resources for small businesses, and SME’s are not getting the benefit of a competitive lending market.