Project Merlin fails to conjure up improved lending

A survey suggests that despite the Government's agreement with the banks, the business lending situation doesn't seem to have improved yet.

by Emma Haslett
Last Updated: 06 Nov 2012
When the Government and the banks signed the Project Merlin accord back in February – which, inter alia, guaranteed small businesses an extra £76bn of lending – entrepreneurs might have been forgiven for believing things were about to look up, at least as far as their financing needs were concerned. But if a new survey by business directory hotfrog is anything to go by, that hasn’t been the case: more than three quarters of businesses say they’ve seen no change at all in their bank’s behaviour since the agreement was signed. OK, so it’s early days – but that’s an inauspicious start…

The good news is that of the 500 businesses surveyed, more than seven in 10 said if they had better access to funding, they’d be able to grow and expand their business – precisely the sort of thing the Government was hoping for when it was wrangling with the banks. Of those, more than 80% said they’d be able to hire at least one more staff member, while more than a third said they’d be able to hire more than one. So it’d be good for jobs too.

Unfortunately, that doesn’t really count for much if the banks are still not putting their hands in their pockets. And the problem is not just about banks refusing to lend; it’s also the conditions attached to borrowing, which are putting entrepreneurs off even trying to get a loan. More more than a third said credit conditions are too harsh (for example, banks are asking for too much collateral), while almost a quarter said they were worried their business isn’t big enough for the bank to consider lending to them. Another 14% said the cost of borrowing is just too high for them to even think about it.

It’s worth stressing that it’s still early days for this agreement; it might be a while before we see the benefits all the way down the chain. But it certainly doesn’t look as though there’s been the kind of step change in behaviour that the Government was presumably hoping for. So if it’s serious about boosting small businesses, maybe it’s already time to give those banks another stern talking to…

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