Out-Law News 2 min. read
15 Feb 2012, 9:24 am
Figures released by the Bank of England last week indicated that although the UK's five main lending banks had exceeded the overall targets of lending to SMEs set under Project Merlin, they were over £1 billion off the total pledged to SMEs.
Investment funds expert Daniel Greenaway of Pinsent Masons, the law firm behind Out-Law.com, praised new credit easing schemes announced by the Chancellor as part of the Autumn Statement in November. Its Business Finance Partnership (BFP), which proposes to make up to £1 billion investment available for lending to SMEs through private sector investors, issued a call for proposals from investment partners last month, he said.
"With the difficulties of Project Merlin, the Government is doing its best to ensure money is actually being put to work. With the primary goal of benefiting UK business it has decided to engage with institutional fund managers and independent small teams alike," he said.
The Chancellor announced the BFP as part of package of credit easing measures for smaller businesses that lack ready access to capital markets in November's Autumn Statement. The Treasury published a request for proposals (11-page / 162KB PDF) from prospective fund managers looking to take part in its first round of investment at the end of last month.
Fund managers participating in the BFP are expected to co-invest up to a maximum of 50% alongside Government money, and will only be able to lend to businesses with a turnover of up to £500 million. The Treasury will contribute between £25m and £250m to any one fund, it said.
Investment management company M&G is likely to be the first beneficiary of the scheme, with a £200m Treasury investment set to back up £800m from pensions and insurance funds and other finance providers, according to the Times newspaper.
Under the Project Merlin arrangement the UK's five main lending banks – Barclays, HSBC, Lloyds Banking Group, RBS and Santander – had agreed to make it easier for smaller firms to access credit. Figures released by the Bank of England last week indicated that the banks had exceeded their overall lending targets, but had only loaned £74.4bn to SMEs against a commitment of £76bn.
A spokesman for the Treasury told Out-Law.com that the lending targets were intended to "kick start a change of culture in terms of lending" to smaller businesses.
"There won't be a 'Merlin II', so to speak. The Chancellor has always made it clear that such negotiated deals cannot be a permanent solution in a market economy," he said.
The Government has also proposed a National Loan Guarantee scheme, which will allow banks to raise up to £20bn of funding guaranteed by the Government to lend directly to businesses with a turnover of up to £50m. Banks will be able to apply for Government guarantees within a two year window beginning as early as next month, providing that they can demonstrate that they will pass the benefits of the guarantee onto SMEs in the form of cheaper loans.
The Federation of Small Businesses said that only 7% of its members had managed to successfully apply for an unsecured bank loan in 2011 despite the banks' Project Merlin commitments. A further 11% managed to take out a secured loan, according to a survey of more than 11,000 of its members.
"We have long said that targets are the wrong instrument to encourage lending and growth. Even though overall lending is above target, this shows that money is going to bigger businesses and not new and fledgling firms that need it to take advantage of growth opportunities that are there even in these challenging times," said chairman John Walker.
"What we need to see is better promotion of the alternatives available and for the Government to put in place their bold credit easing plans, which will help small businesses access finance on better terms," he said.
