The scheme to stimulate bank business lending, Project Merlin, has come under fresh scrutiny since missing its Q1 SME lending target. However, new figures have put its performance in a different light. At the same time, recent data shows that the popularity of invoice finance continues to rise.
The big banks, including partly state-owned Royal Bank of Scotland, have endured weeks of mounting pressure over small business banking services, including threats from the Prime Minister and, most recently, Business Secretary Vince Cable, who again raised the prospect of punitive taxes if goals were not met.
However, new information on the lending targets has raised a question mark against the validity of these warnings. According to this information, provided by a government minister, the targets are actually lower than initially stated, meaning that Project Merlin is in the black, not the red.
Where this leaves the credibility of the scheme remains to be seen, but a sudden moving of the goalposts will surely not strengthen its position. SMEs looking for a better business banking service are unlikely to feel more confident about the scheme.
But perhaps that won’t bother them too much. According to the Asset Based Finance Association’s latest quarterly report, invoice finance is outperforming all other types of business lending. This data suggests that SMEs, frustrated by the efforts of Project Merlin, are increasingly turning to alternative commercial finance.
The report states that total advances from its members grew by 9% in Q1 2011 compared to the same period in 2010, while wider bank lending contracted by 2.5%. Hire purchase and leasing finance rose by 8% and export finance by a staggering 50% – the latter figure appears to back recent EEF industry federation and BDO findings that export demand is driving manufacturing growth.
Faced with a scheme hamstrung by uncertainty and indecision, it would appear that SMEs are taking matters into their own hands and increasingly cutting big banks out of the loop.
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