So Barclays Isn't Into Magic After All

Several banks promised to make funds available to SMEs as part of 'Project Merlin' in order to promote economic growth. Barclays was one of them.

Unfortunately, and even as Barclays was promising the Chancellor that it would boost loans to small firms this year, the Bank advised customers with turnovers of less than £5m a year that it would no longer provide them with asset finance - money that would enable them to buy machinery, office equipment, and vehicles. In effect, having committed to give more credit, the Bank withdrew essential lines of credit from thousands of its existing customers.

A spokesperson for Barclays stated that clients who could no longer rely on the Bank for asset finance could still 'tap the bank for alternative sources of finance such as working capital loans, overdrafts and term finance through loans and commercial mortgages' - which all sound like very expensive options to me.

Frankly,my advice to SMEs who have been using Barclays is to take their custom somewhere else - preferably to an organisation that is prepared to live up to the commitment it made to the Chancellor, and has a real interest in promoting economic growth in the UK.

Project Merlin - £76bn Available in Loans to SMEs

If you were attending to George Osborne on the 9th of February, you'll know all about Project Merlin - and if you weren't and don't, then you can find out all about it by visiting Real Business and reading Carryn Dewing's article, which you'll find under 'Finance'.

Once you've done that, though, you might want to visit the Forum of Private Business , where you'll find that Phil Orford, the CEO of the FPB, has raised a very interesting question about the pledges made by the Banks as part of Project Merlin. Mr. Orford wants to know how the banks intend to increase the flow of credit to smaller businesses by 15% if, as they claim, demand for lending is down and applications are running at an 80% acceptance rate - which is exactly what I've been wondering myself.

As the Bank of England is going to be acting as watchdog to ensure that loans are being made available to businesses under Project Merlin, though - and particularly as honouring the commitment to provide credit to business is now going to be one of the performance targets used to determine bank CEO's bonuses! - I'm pretty sure that the answer to Mr. Orford's question will be revealed to all of us very soon.

Mr. Orford, in the meantime, believes that in order to fulfil their commitment to lend more, the banks are going to need to cut down on sector-based discrimination, be less punitive on viability assessments and more pro-active in securing up-to-date financial information from their clients and - very importantly - be prepared to communicate clearly what key assessment criteria are so that applications are more compliant with the lender's needs. I believe that he's right, but whether any of these modern miracles will come to pass is more than I can say.

Mr. Orford also had a message for all SMEs, and I think it's more than worthwhile passing it on: "... the banks," he said, " have committed to lend more. Test them on their commitment and get your applications in."

Good advice!

The Reason You Are Not Getting Is Because You Are Not Asking?

According to recent information provided to the Bank of England by its network of regional agents, credit conditions are almost back to normal for larger firms, but smaller businesses are still finding it hard to secure bank lending - which will not, of course, be any great surprise to anyone who is trying to run a small business.

What was particularly interesting to me about the Bank of England's Report was the fact that it indicated that a proportion of smaller firms had given up hope of persuading banks to lend to them and had therefore ceased to ask for credit , and that it was that factor that was confirming the banking community in its belief that the demand for business credit was weakening.

Frankly, I believe that the demand for business credit would be seen to be stronger than ever were small businesses to be actively encouraged by the banking community to apply for credit - as opposed to being actively discouraged and all too frequently refused funds by organisations that were profligate and greedy in the past, and are now making up for it by being altogether too parsimonious.