This week it was announced that the five biggest UK banks missed have their small business lending targets - yet again.
Under Project Merlin, last year’s much-vaunted banking agreement, HSBC, Lloyds, RBS, and Santander were all expected to make it easier for small firms to secure credit – and yet lending to small firms fell during every quarter of 2011.
According to the banks, the targets are being missed because small businesses have no appetite for debt. They claim that SMEs simply aren’t coming forward, preferring instead to hunker down and make do with what they have.
Our own research suggests that this is only half the story. The most recent Simply Business SME trends survey found that banks rejected applications from a third of the small firms that sought credit over the past 12 months. These knock-backs have had a significant impact on entrepreneurs’ confidence in the banks – so much so, in fact, that only 9 per cent of the business owners we surveyed were planning to apply for a loan during 2012.
Source: SME trend survey Simply Business 2011
So in one sense the banks are right: appetite for credit does seem to be waning amongst small firms. But whose fault is this? Is it small business owners, who are struggling to keep the economy moving in these increasingly uncertain times? Or is it the banks, who so often seem to go out of their way to make the process of borrowing as difficult and as expensive as possible?
Project Merlin has failed. The scheme was intended to provide small businesses with much-needed credit – the lifeblood they require if they are to kick-start the country’s ailing economy. But Merlin had no teeth. Even now, after taxpayer-owned RBS missed its targets again, the government has refused to take any action against the banks. Instead, we have another round of quantitative easing – a scheme from which small firms are yet to derive any tangible benefit.
The banks are attempting to shift onto small firms the blame for their own failure. Yes, SMEs are reticent about applying for credit – but this is because of an increasingly ingrained assumption that the banks will refuse to help. It is small businesses that will lead the UK back to growth, but they will only be able to achieve this if the credit system functions properly. Project Merlin has now been replaced with the so-called ‘credit easing’ scheme, which will provide loan guarantees for small, credit-worthy firms. Few will mourn the loss of Merlin. But the banks must now take responsibility for their own lending – and the government must show that it is prepared to take decisive action to ensure small firms get the help they need.