Bank of England highlights failure in small business lending
A Bank of England survey report published today spells out the ongoing difficulties which small and medium sized businesses (SMEs) face in accessing finance, while separate figures from the Bank show that business lending has contracted in ten of the last twelve months.
The Bank of England’s monthly Agents’ Summary of Business Conditions report for September, released today, notes that “small businesses and start-ups still found it difficult to gain access to credit, and where loans were available, fees remained elevated and the applications process was often drawn out.”
According to the Bank of England’s August statistics on lending to UK businesses, the net monthly flow of lending was negative in ten months of the past year – including each of the last three months.
The government’s Project Merlin agreement with the banks to boost lending to businesses has been criticised for setting up gross rather than net targets, which cover facilities made available to businesses rather than actual lending.
Additionally, Merlin does not address the cost of credit and its affordability to businesses. According to a survey of more than 150 SMEs across the country carried out by Labour this summer, almost a third of businesses had experienced an increase in the cost of borrowing, and of these businesses 45% had seen a rise of 3%.
Shadow Minister for Small Business & Enterprise Chuka Umunna MP is writing to Business Minister Mark Prisk to ask whether the government has begun negotiating a new deal with banks for lending in 2012 to replace Project Merlin, and if so, whether it will address the widely-publicised shortcomings of the Merlin deal.
Chancellor George Osborne praised the Project Merlin agreement in answer to a question by My Umunna last week in the House of Commons, saying: “I talk to UKFI all the time, and one of the things I talk about is ensuring that the banks in which we have a public ownership of shares are meeting their Merlin lending targets. I congratulate Lloyds, which has changed its operations and advertising campaigns and has tried to encourage small business lending.
Today’s Agents’ Summary also highlights the lack of confidence in the economy as a factor holding back growth, with “increased nervousness” leading “some firms to scale back investment plans”.
Commenting, Shadow Minister for Small Business & Enterprise Chuka Umunna MP said:
“The statistics today show that on the ground, small and medium sized enterprises are still struggling to access finance to grow their businesses. With the economy flatlining and unemployment high, businesses who are trying to grow are hindered at every turn.
“If the government seeks to replace Project Merlin, the Tory-led Government need to get tough – it is crucial they and the banks learn from the shortcomings of Merlin and provide real support for our SMEs.”
