By Max Clarke
Following yesterday’s announcement of the ‘Project Merlin’ agreement between government and the UK’s largest banks on lending, pay and bonuses, which saw banks agree to lending some £190bn to businesses this year, including £76bn to SMEs, the Forum for Private Business, John Antunes, Head of small businesses at German business software giant SAP, and the UK200Group discuss the project’s various facets:
John Antunes, Head of SME, SAP UKI:
“In the current economic climate, small and medium sized businesses continue to face barriers to growth; not least being access to finance and being able to demonstrate viability to lenders. The announcement of ‘Project Merlin’ and the £76bn earmarked for small businesses is most certainly welcome news. That said, it still does not guarantee every business will receive the financial backing they require. As such it is vital that SMEs continue to focus on particular areas to heighten their chances of survival and ultimately success, to help drive the economy out of the downturn.
Voicing a certain scepticism towards the project, Forum of Private Business CEO Phil Orford said:
“The question we need to ask is how? The banks say demand is down; they say applications are running at an 80% acceptance rate. If this is the case, how do they intend to increase lending to small firms by 15%?
“I believe the answer is that they must review risk criteria and be less punitive on viability assessments — and make a particular effort to cut down on sector-based discrimination.
“The banks must be more proactive in securing up-to-date financial information from their clients and they need to communicate more clearly to applicants what the key assessment criteria are, so applications are more compliant with the lenders’ needs.”
Mr Orford added: “The message now to all small businesses is that the banks have committed to lend more. Test them on their commitment and get your applications in.”
Mirroring Mr. Orford’s scepticism, the UK200Group commented: Any commitment from the banks, whether a legal obligation or an encouragement to increase lending to small businesses, is surely welcome and the lending elements of Project Merlin are certainly better than having no agreement at all. However, the lending targets are purely academic and they won’t be met if insufficient application for debt is made by small businesses (though this is unlikely).
Far more likely is that towards the end of the year, if the banks are behind target, it is highly probable that they will not sanction lending to businesses that don’t have a compelling application just to meet lending targets. If a bank is likely to reject a particular lending application because the bank has concerns over the serviceability of the loan, the quality of the management team and the available security etc, the lending targets are then hardly likely to lead to the banks accepting such applications.