Small businesses are still closing despite government lending targetsIt was meant to ensure banks loaned money to the people who needed it most, but it appears Project Merlin has had less than wizard results.
The Government scheme was designed to get banks lending to small businesses but figures show it has failed – undershooting modest lending targets by more than £1billion.
Official data from the Bank of England shows that against a minimum target of £76billion, Barclays, HSBC, Lloyds Banking Group, RBS and Santander between them lent just £74.9billion to small and medium sized businesses.
The example of Stephen Burnett is indicative of the problems faced by small businesses.
"I’d met with three different banks, none of whom were prepared to lend despite the business having signed contracts from customers – in the end, their only recommendation was that I re-mortgage my house,” said Mr Burnett, managing director of The Retail Data Partnership – a small firm in Lincolnshire established 15 years ago.
John Walker, national chairman of the Federation of Small Businesses said their own study came across similar examples.
"Our research in the last two years shows that around a third of businesses are refused credit," he said.
Instead of going to banks, information from the FSB shows start-ups are employing other means to find cash.
Some 70 per cent of new businesses used savings and even an inheritance to fund themselves, figures from the FSB show. Another 34 per cent got money from friends and family and just 25 per cent used a bank overdraft.
“Newer businesses are using more of their own money to fund their business rather than turn to the banks for help,” he added. “What we need to see is better promotion of the alternatives available and for the Government to put in place their bold credit easing plans, which will help small businesses access finance on better terms.”
Banks blamed a lack of demand, for undershooting lending targets.
“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,” said a spokesman for the Project Merlin banks.
But others disagree.
“There is not a lack of demand for finance among small businesses in the UK; there is a lack of demand for bank loans,” said Samir Desai, co-founder of Funding Circle – an organisation that lets businesses ask the public for support instead of the banks.
“Despite claims by the banks that they are committed to supporting the growth of small businesses, they continue to set high prices and tougher terms that few businesses can afford to meet.”
It’s a view shared by The Retail Data Partnership’s Mr Burnett: “The banks appear to have lost their ability to deal with SMEs.”
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