SMEs to suffer from Merlin shortfall?

With the credit crunch posing a major threat to businesses caused by a lack of lending, the government and the bank of England has been keen to ensure much is done to get the lenders top supply sufficient finance to firms to help them invest and grow.

The motivation behind this was to avoid one of the elements of the Great Depression – that of firms collapsing because of a lack of bank lending. This way, it was intended that firms who might otherwise be facing a winding up order would instead be enjoying positions of comparative strength and security.

And last year saw banks and the government agree the details of Project Merlin, aimed at achieving precisely this aim. Under terms signed up to on February 9th 2011 by the big five banks, a minimum total of £190 million was to be lent to businesses, of which £76 million was to go to small and medium enterprises (SMEs).

The Bank of England’s figures have now shown that the project has both succeeded – and failed. While the overall level of gross lending hit £214.9 billion, the tally for lending to SMEs was only £74.9 billion.

As a result, many firms that might have found themselves in a more secure position could now be facing the threat of going to the wall – if they have not already done so.

Speaking to the BBC, Andrew Cave from the Federation of Small Businesses said: “The Merlin targets have failed.”

He added: “Talking to our members, 30 per cent of them say they missed a growth opportunity because they weren’t able to access finance at the right times, so there is still a problem.”

So with SMEs apparently failed by Merlin, the task falls to the government, Bank of England and high street lenders to plot a way forward.

And the survival of many small firms – as well as the success of others – may depend on efforts to develop chancellor George Osborne’s new plan of credit easing being more successful in delivering the finance they need.