News that the high-street banks have come up short in terms of their Project Merlin small business lending targets will have surprised few in the SME sector. One reaction has been a call for an SME bank. A study showing that personal savings are being increasingly used as working capital will only increase support for new SME finance action.

This week the Bank of England has confirmed the news from the British Bankers’ Association that small business lending under Project Merlin fell short of its £74.9 billion target for 2011 by £1.1 billion. The Royal Bank of Scotland has come in for particular criticism.

Unsurprisingly, the data has ramped up the pressure on George Osbourne to improve SME credit conditions. The details of the Chancellor’s national loan guarantee scheme are being hammered out and an announcement is expected prior to the 2012 Budget, but small businesses are calling for more, including the establishment of a bank for SMEs, a move supported by the British Chambers of Commerce.

While calls for alternative SME credit services are nothing new, this latest plea is given extra significance by news from a new survey that personal savings were the most likely source of working capital for entrepreneurs in the last quarter of 2011. This is a worrying trend, especially given the risk of personal insolvency involved, and not one that is likely to create the platform for the business and economic growth targeted by the government.

So, what do this week’s developments tell us about the state of SME finance services? Well, it is as clear as ever that small businesses have little faith in high-street bank SME credit facilities, but also that the role of alternative small business lending services is set to continue to grow. An SME bank is an unlikely move, but products such as invoice discounting, factoring and asset finance have an important role to play.

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