Project Merlin sees banks lend to SME’s

As part of the Project Merlin initiative, UK’s biggest banks are increasing the lending to SME’s by 15%. Barclays are one of the UK banks to pledge support to Project Merlin.

The big four RBS, Lloyds, HSBC and Barclays are to make available £190bn in new credit to businesses in 2011 of which £76bn is for SME’s and more will be pledged if the demand is there.

Christie Finance, commercial finance brokers and sister company of Christie and Co are cautiously optimistic about its merits says their head of UK Business Mortgages, David Grant.

The hope is that the majority of the £76bn is for new business and not just for refinanced, re-priced and recycled small business debt that is already on the books. A great deal of the lending in 2010 was exacting that and the banks were able to label it “new” lending.

This lending is intended to free up the pent demand from business purchases in our sectors. The area of financing remains the largest single obstacle to a full sustainable recovery in our markets and these announcements will be a welcomed sign to the existing business owners and the new ones as well.

The Forum of Private Business (FPB) is questioning how the banks will increase the flow of credit to small businesses. How will they increase lending by 15% if what they say is true that the demand is down and applications are running at an 80% acceptance rate.

There needs to be a review of risk criteria and a cut down on the sector-based discrimination and less punitive on viability assessments.

So applications are complaint with lenders’ needs, the banks need to be more proactive in getting up to date financials form clients and communicate with potential clients what the key assessment criteria is.

A test needs to be made on the banks commitment to lend. The message is out the they are willing to lend to small businesses and it is time to get the applications in and see.

Project Merlin also contain a pledge by banks for an additional £1.2bn  for regional growth and the Big Society.