FSB: Project Merlin welcomed but still fundamental issues in the banking sector

The Federation of Small Businesses (FSB) welcomes the news that Project Merlin has come to an agreement but still believes that more needs to be done to change the structure of banking in the UK to promote growth, especially for small firms.

The news that banks have agreed to lend £190 billion – £76 billion specifically for small firms – is a welcome step. However, we wait to see how the performance matrix will be implemented and how far off the target banks would have to be before repercussions will be taken, as well as ensuring how they will make certain that the smallest firms and new start-ups will receive vital cash.

It is also a concern that the additional £1.5 billion will only go to businesses looking to receive between £2 million and £10 million in equity finance and so will not hit the smallest of businesses that need it most.

Recent FSB survey figures have showed that around 84 per cent of small businesses are not approaching the bank for credit, either because they have already been refused or because the cost is too high. And firms which do use the banks as their main source of finance are being penalised by high interest rates – at a time when the base rate is at an all time low.

Small firms don’t have a huge amount of scope in accessing finance, unlike larger businesses. More competition in the sector will mean greater competitiveness in terms of the cost and the services provided. With the vast majority of small firms banking with the main high street banks, it is vital that the structure of the banking industry is changed to create a more stable environment.

John Walker, National Chairman, Federation of Small Businesses, said:

“Today’s announcement should not be allowed to let the Government or the banks off the hook, and is a preamble to what we hope will be bigger announcements from the Independent Banking Commission. While we welcome the intention to lend more to small businesses, we still need to see a major restructure of the sector.

“Many small firms aren’t going to the banks to access finance and credit and the main problem they face is the cost of credit. Many small businesses have lost faith in the sector and are looking at other means of finance – and it is the smallest of firms that need finance most.

“To achieve robust economic recovery, the smallest firms and start-ups need to have access to finance, but today’s commitments – as with previous lending targets – are unenforceable.”

ENDS

Notes to Editors

The FSB is the UK’s leading business organisation with over 210,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk

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Contacts

Andrew Cave, Chief Spokesperson: 07917 628991
Prue Watson: 020 7592 8121/ 07825 125695 prue.watson@fsb.org.uk
Sara Lee: 020 7592 8113/ 07595 067068 sara.lee@fsb.org.uk

For regional FSB contacts please go to www.fsb.org.uk