Editor’s Blog on the latest Project Merlin report
IT perhaps comes as little surprise to any small business owner or the company boards of the UK’s SME firms that the banks fell £2 billion short of their business lending targets to SMEs under the Project Merlin agreement.
Project Merlin – not sorcery, although the ability of the banks, particularly the part-nationalised variety, to brush aside criticism and keep taking the bonuses has a sense of black magic about it – is an undertaking by HSBC, Barclays, Royal Bank of Scotland, Lloyds and Santander to lend money to businesses and SME companies.
But they have failed to fully meet that pledge – for many reasons (and some would suggest to bolster their own bank balances).
In response to today’s latest shortfall, the Forum of Private Business says it wants better competition, more investment in regional branches and the restoration of lending powers to local bank managers. The latter, in particular, seems like a sound idea to me.
The joint statement by the Project Merlin banks said small business lending demand had declined. However, the Forum said its own research suggested many firms were focusing on consolidation not growth, and that the downturn in SME requests for finance is a result of mounting alienation due to lenders’ punitive risk criteria and inflated interest rates, rather than indicative of a lack of need for affordable finance.
“I am disappointed but, frankly, not surprised that these SME lending targets have not been met – we are prepared to wait until the end of the year before making a final judgement but it is clear the banks are trotting out the same old excuses when they are simply not delivering on the ground,” said the Forum’s chief executive Phil Orford.
“There is a widening knowledge gap when it comes to lenders’ ability to gauge small business risk. We want to see banks invest in regional services, and also hand decision making powers back to local branch managers who are best placed to make key lending decisions based on realistic assessments of individual businesses. We must move away from the over-centralised, tick-box mentality we are seeing now.”
Amen to the ending of tick box mentality. It’s a modern day curse – and often the subject of invective from the office door of Business Car Manager’s landlord, accountant Peter Edney. People have been stripped of decision making powers in preference to the god that is process.
While I think a return to localised bank manager knowledge would be hugely beneficial, I did hear a good piece of advice from a pundit on today’s Radio 5 Live early morning business programme, Wake up to money.
It was suggested that SMEs would have more success in accessing bank finance if they used a professional – I immediately thought of a business advisor or your firm’s accountant – to make the request. “It takes away the emotion,” said the expert.
At a time of financial stress, that can often be the case with small business owners – and the cogency of their argument can easily be overtaken by the emotional tie to the business.
Like the Forum’s idea, it’s another method of accessing Project Merlin money. Which has to be better than the bank’s hoarding the cash.
