If we are to believe the early reports, the big banks have come up short in terms of small business lending under Project Merlin and the first quarter targets have been missed. Cue gloom and doom in the papers. But is it too early to judge this commercial finance initiative?

It has been reported that bank lending under Project Merlin fell £2-3 billion short of the £19 billion SME lending target for the first three months of the year. The banks are committed to making £76 billion of bank credit available to small businesses in 2011. This shortfall will be used by some to criticise the banks for continuing to be reluctant to provide SME finance and to proclaim Project Merlin a failure. But are these voices jumping the gun?

The banks are likely to reply that they can only meet demand and that if SMEs aren’t asking for commercial finance, then they can’t give it. Wherever the truth lies – a point that has been discussed here – it seems too early to crucify the banks and the initiative. After all, these are only quarterly figures and we are talking relatively small margins in terms of deficit, which could be made up over the remainder of the year.

Perhaps growing awareness of alternative commercial finance is acting against the banks and Project Merlin. Recent figures from the Finance & Leasing Association suggest as much. According to the association, small businesses used brokers to access more than £700 million worth of asset finance between December 2010 and February 2011, up by over 31%.

Whether it’s asset and leasing finance or invoice discounting and factoring, or any other alternative business lending service, it would appear that SMEs are increasingly diluting their reliance on big bank business finance.

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