Project Merlin - A missed opportunity
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Project Merlin has failed to deliver the lending promises set out in February last year, leaving SMEs with no solution to finance problems.
When the five pillars of the British banking system came together in February last year the result was a pledge: within one year they would commit £76 billion of lending to small and medium-sized businesses (SMEs) in the UK.
Fast-forward 12 months and the result of Project Merlin is that HSBC, Barclays, Royal Bank of Scotland, Lloyds TSB and Santander have collectively failed to live up to the promise made.
In all, the banks lent SMEs £74.9 billion between them. This figure, although only £1.1 billion under the original allotted amount, represents a failure by the government and lenders to prove to businesses that it is providing finance for early-stage companies.
In an even more frustrating turn of events for SMEs, the findings of Project Merlin show that banks gross lending facilities hit £214.9 billion for the period, 13 per cent above the committed amount of £190 billion, and proof that banks are favouring lending to big business.
With the banks so openly claiming that they are lending to SMEs against a challenging backdrop it seems surprising that the powers that be could not rally themselves to divvy out the final £1.1 billion and at least make it a small win for the institution that has been so derided during the economic crisis.
Gary David Smith, co-founder of Prism Total IT Solutions, says that the result of the bank’s lending shortcomings is that SMEs are not growing as they should because they do not have the capacity on demand.
What is even more alarming are the measures that business owners now have to stoop to in order to grow their companies. A survey conducted by the Federation of Small Businesses reveals that the number of firms using a bank overdraft or loan has dropped in the past two years, despite the impact Project Merlin was supposed to have. Two thirds of SMEs did not seek outside sources of finance last year, instead relying on personal savings to fuel their companies.
Smith believes that the use of personal funds for working capital is not a sustainable strategy and so is at odds with the government’s plans to drive employment through SMEs.
A further look into the figures reveals that only HSBC and Santander met lending requirements, although Santander has pulled out of the scheme, leaving no lending targets for 2012.
As it now stands, the future of SME lending in the UK now falls to the Chancellor’s credit-easing strategy which was outlined in the government’s Autumn Statement.
Under that scheme businesses with a turnover of up to £50 million will qualify, with loans guaranteed by the government. Shadow chancellor Ed Balls has described the initiative as similar to the Small Firms Loan Guarantee that was phased out in 2009 and the subsequent Enterprise Finance Guarantee scheme.
However it remains to be seen whether the high threshold will see banks hand out a few high amount loans that would already have been made rather than a wider array of small loans, helping mid-sized established businesses but alienating smaller growth companies.
Only time will tell whether the business sector which has been deemed the lifeblood and future of the UK economy will see a noticeable change in lending options or just another bag of empty promises.