By Daniel Hunter
Data from the Bank of England has revealed that the UK's five leading banks all missed their Project Merlin lending targets to small to medium sized enterprises (SMEs).
However, this did little to stop them reaching their overall lending targets, with gross new loans of £214.9 billion against a target of £190 billion.
The SME lending target was set at £76 billion, with data showing that banks only lent £74.9 billion.
The banks blamed the shortfall on fewer firms coming forward for credit.
A spokesman for the banks said demand for credit from small firms fell last year and "remains weak".
Despite having missed the lending target, lending to SMEs in 2011 was up from £66 billion in 2010.
The national chairman of the Federation of Small Businesses, John Walker, described the failure to hit the £76bn target for loans as "extremely disappointing".
"It is even more disappointing, given that the Project Merlin targets were set artificially low in the first place," John Walker, national chairman of the Federation of Small Businesses, said.
"Now, more than ever, it is imperative that the government embraces plans for alternative sources of finance and puts in place its credit easing scheme."
Meanwhile, a spokesman for the Merlin banks said the figures showed the banks are willing to lend.
"This performance demonstrates the banks' commitment to providing businesses with the financial support they need to invest and grow and the significant progress made this year," he said.
"The banks' efforts to encourage customers to come forward with borrowing proposals are set against this overall challenging economic environment. The business demand for credit remains weak."
Tracy Ewen, managing director of independent commercial finance provider IGF, said the fact the banks had missed their target was worrying.
“It is worrying that there has been quite so much uncertainty and confusion about the Q4 Project Merlin lending results," she said.
"While the banks met their overall ‘targets’, it is worth remembering that these targets refer to lending offered by banks to companies and not the lending that has actually been taken up. The Bank of England has today confirmed that the big banks fell £1.1 billion short of the SME lending targets.
"Project Merlin has not succeeded in achieving what it set out to do; lending to small, at risk businesses in the UK.
"George Osborne has announced that he will not be setting future fixed lending targets. Whilst I agree that Project Merlin was not the answer, how long will SMEs have to wait before further measures are put in place?”
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