Banks Won’t Deliver on “misguided” Small Business Lending Pledge
UK banks won’t deliver on their pledge to lend more to small firms, as the commitment is unenforceable, business groups have said.
Under the Project Merlin agreement (PDF), UK banks have pledged to lend about £190 billion to businesses in 2011, including £76 billion to small firms (up from £66 billion last year). The banks have also committed to lend more should the demand arise.
The Government has stated that if the banks don’t deliver on lending targets, bonuses to senior banking staff may be restricted. However, the Association of Chartered Certified Accountants (ACCA) said that the scheme cannot be enforced.
“This project is completely misguided.”
said ACCA senior policy advisor, Emmanouil Schizas.
“Like previous projects, it will probably never deliver on the bank’s commitment.”
“If you look at what the banks have signed up to, it is all subject to commercial considerations, linked to commercial objectives, and to economic conditions. The wiggle room is so enormous that it’s non–binding.”
Schizas also questioned whether there would be enough demand from small businesses to fulfil the bank pledge
“Small businesses have more deposits now with the banks than they did in 2007, before the downturn.”
“The indication is that demand [for loans] is now going down rapidly and the plan the banks had already made for lending this year took this into account, which this new commitment doesn’t. If the banks were right [about the number of small firms applying for bank loans going down this year], it begs the question of who they are going to lend the money to.”
“Two years on from now, I don’t think we’ll be referring to Project Merlin as a benchmark – it will have become irrelevant.”
The Federation of Small Businesses (FSB) national chairman, John Walker, said:
“Many small businesses have lost faith in the banks and are looking at other means of finance – and it is the smallest of firms that need finance most. These commitments, as with previous targets, are unenforceable.”
Co–founder of small business SingleWithKids, Chrissie Lewandowski, said:
“We built our business without the banks, which probably hindered our growth because it limited the money we had to invest.”
“They’re going to have to earn my trust before I’ll put my livelihood and my employees’ livelihoods in their hands.”