The big banks, including partly state-owned Royal Bank of Scotland, have published their half-yearly figures and the latest Project Merlin results are in. The banks have met overall corporate lending targets but have come up short in terms of small business lending. A small improvement on Q1 results, but is this progress?
Well, yes and no. Some commentators have said that Project Merlin could still reach its target for the year and that £37.3 billion of SME lending in the first half of the year is a positive achievement, if slightly short of the goal. Others have been more critical. The Bank of England has said that the relationship between banks and entrepreneurs needs to improve, a sentiment echoed by the Federation of Small Businesses and the British Chambers of Commerce.
Interestingly, while a political battle rages over the small print of Project Merlin, the popularity of a group of state-backed regional investment schemes perhaps points to a truer picture. The schemes, focused in the north of England, have been inundated with applications. Tellingly, the injection of public sector money is helping companies achieve larger loans with other lenders.
Here, it seems, is the rub – it’s about confidence: banks’ confidence in small businesses and small businesses’ confidence in banks. There isn’t enough of either, which is why the small business sector continues to call for more help from the government and expand its use of alternative finance sources, whether it’s funding schemes or invoice finance, including invoice discounting and factoring and asset finance.
The jury is still out on Project Merlin, but while the political debate over its future continues to fill columns, what is clear is that SME lending needs to increase.
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