Lending to SMEs - what's the score?

The coalition government attempted to increase lending to small and medium-sized enterprises (SMEs) with the introduction of Project Merlin – an agreement with five major mainstream banks that encouraged them to lend to SMEs.

 
Now, over halfway through the year, LoanTalk asks whether the banks look on course to reach their target and what affect this initiative has had on the secured lending industry at large?
Brian Mairs explained the Project in more detail: “Project Merlin was a commitment by five banks to the government to make a specific amount of money available to small businesses in this financial year. The banks have said they are on course to meet their targets, and individual banks provided details in their results published earlier this month.”
The target for a year stands at £76 billion. First quarter lending was £16.8 billion according to growthbusiness.co.uk – which falls short of the desired £19 billion, which would ensure the banks were on course to hit their end of year target.
Figures recently released by the Bank of England reveal for the first half of the year the total lending to SMEs stands at £37.3 billion. This is £700 million short of the £38 billion needed to be on course for the £76 billion lending guideline at the end of the year, so it remains to be seen whether the banks will be able to make up the shortfall in the second half of 2011.
The five banks involved are Santander UK, HSBC, Royal Bank of Scotland, Barclays and Lloyds Banking Group. Lack of demand was signalled as a reason behind falling slightly off course, yet many SMEs appear desperate for funding.
Rob Derry, Managing Director of Brunel Mortgages & Loans Ltd in Swindon, commented on the recent figures: “I suppose, if anything, we have seen a little bit of an increase in business from SMEs. We don’t tend to use high street routes but I don’t think that the project has had too much of an effect really – and I can’t see it changing much – I wouldn’t be surprised if banks could have lent more but aren’t.  
“Away from the mainstream there are only a couple of term lenders in the SME market so competition is a little sparse meaning lenders are still cherry-picking. In terms of secured loans for individuals, Blemain Group, Link Loans and Nemo Personal Finance are all competing to try and lend and doing lots of business in the process – that’s where the opportunities are and where there is a desire to lend more. Essentially, I don't believe the banks are lending more just because the government has asked them to.”
Steve Walker, Managing Director of Promise Solutions agreed: “I haven’t really seen any great change in attitude by the banks regarding lending to SMEs. Irrespective of targets, I don’t think there has been a significant change – banks are still overly stringent when offering lending to small businesses. It is great there is a target in place, but I don’t think it has been making too much of a difference.”
However Brian Mairs, of the British Bankers’ Association said: “The banks are ready to lend to viable businesses. It is clear from the SME Finance Monitor that economic uncertainty is discouraging many firms from expanding their businesses at the moment, and banks are reporting small businesses have record sums on deposit at the moment. Based on this evidence, the banks are focusing their efforts on the small minority of businesses which want to borrow but are unable, for whatever reason, to secure the borrowing they need.”