News

January 28, 2011

Talks to boost lending to small firms “haven’t stalled”, says Government

The Government has denied reports that negotiations with the UK’s main banks to improve lending to small firms have stalled, writes Clare Bullock.

The Daily Telegraph and BBC have both reported that the banks have delayed an agreement to lend £200 billion to businesses in 2011. The reports claimed that bank bosses have argued that the lending target is not in the best interest of their shareholders.

However, the Department for Business, Innovation & Skills (BIS) denied that the banks were holding out on the discussions, known as “Project Merlin”, saying no lending targets had yet been agreed.

“Absolutely nothing has been agreed – the banks haven’t stalled,” said BIS spokesman, Miles Erwin. “The banks have made a proposal on lending and we’re discussing this with them.

“It’s very important that we get the right agreement,” he added. “The figure of £200 billion is absolute speculation. We’re trying to get the right agreement for small businesses in the next few weeks.”

New figures from the Bank of England have revealed that lending to businesses fell by around £5 billion in the three months to November 2010.

“These figures are another deafening blow to the banks’ claims that they are lending,” said co-founder of online social lending scheme Funding Circle, James Meekings.

“Look even closer and you will see how the situation is getting worse for small businesses – the stock of lending is falling faster and the interest rates being charged are putting them off applying for loans in the first place,” he added.

Owner of small business Graphic Results, Mike Handley, said: “The banks are completely risk-averse. If you’re a shareholder, you buy into a business – there isn’t a guarantee that shares will go up.

“I haven’t applied for a small business loan – I looked into doing so a while back and it would have been a case of jumping through hoops,” he added. “I decided it wasn’t worth doing because they are not prepared to give a great deal back.”

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