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Project Merlin: Banks Fall Short of Small Business Lending

Economic commentators argue that during the financial crisis of recent years, the reason for so many small businesses collapsing can partly be attributed to banks refusing to lend to viable companies.  Of the various attempts made by the Government to boost the UK economy and encourage the growth of British businesses, UK banks were asked to be more forthcoming in granting loans to businesses over 2011.

Last year the five main UK banks (Barclays, HSBC, Lloyds Banking Group, RBS and Santander UK) made an agreement with the Government that they would commit themselves to lending a target of £190bn to businesses during 2011; and more specifically that £76bn of that would be for small businesses in a venture entitled “Project Merlin” – intended to make it easier for smaller firms in particular to access credit.  The banks successfully exceeded their target by granting new loans worth £214.9bn to businesses – but they missed their target by only lending £74.9bn to small businesses.

The £74.9bn the banks lent to small and medium-sized firms last year compares with £66bn in 2010.

The national chairman of the Federation of Small Businesses, John Walker, described the failure to hit the £76bn target for loans as “extremely disappointing”, adding, “It is even more disappointing, given that the Project Merlin targets were set artificially low in the first place.  Now, more than ever, it is imperative that the Government embraces plans for alternative sources of finance and puts in place its credit easing scheme.”

A spokesman for the Merlin banks, however, argued that the banks had worked hard to “encourage customers to come forward with borrowing proposals” but that “the business demand for credit remains weak”.  Indeed, last month’s Bank of England Credit Conditions Survey suggested that the demand for credit from small businesses fell in three out of four quarters in 2011.

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One Response to “Project Merlin: Banks Fall Short of Small Business Lending”

  1. Zoe Hannam says:

    Voices from the ground up ….

    In my experience and in reality start-ups and micro-businesses do not fall into the banks criteria for lending as ‘small businesses’.

    If banks had the resources to support these businesses lending on a smaller scale with a credit easing scheme, this could potentially make up for the shortfall, and help to kick-start a new economy.

    ‘Project Micro-Merlin’ – could be more to the point.

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