Project Merlin Fall Short of Small Business Bank Lending

A £2.2 billion shortfall in bank lending to small businesses is expected to be announced by the Bank of England next week.

Under Project Merlin (PDF), Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander UK pledged to lend about £190 billion to businesses in 2011. This included £76 billion earmarked for small business — or £19 billion a quarter.

However, reports have suggested that only around £16.8 billion was lent to small firms during the first quarter of the agreement.

“Without sufficient demand from small businesses, the targets won’t be met and are unenforceable.”

said Federation of Small Businesses (FSB) national chairman, John Walker.

“Small businesses have said that it’s the cost of finance that has put them off approaching the banks for credit.”

“For the banks to lend to more small businesses we need to see more competition in the sector to help to drive down costs.”

An HM Treasury source said that if the reported lending numbers proved accurate, the signs were encouraging that the banks were on track to meet the £190 billion lending target as this was only set half way through the first quarter.

The British Bankers Association said it could not comment on a matter that only affected a small number of its members.

The Bank of England’s Credit Conditions Survey (PDF) for the first quarter of 2011 showed demand for credit among small businesses had fallen. This compared with unchanged demand among medium-sized businesses.

A recent FSB survey found that only 16% of small firms had applied to the banks for credit.

Project Merlin will fail in its task of small business lending

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