BANKS FALL CLOSE TO £1BN SHORT OF SME LENDING TARGET
by MICHAEL TRUDEAU
REGULATION / FINANCIAL TIMES ADVISER October 12, 2011
“The Q3 Project Merlin figures released today show that the major banks lent a total of £18.8 billion to SMEs, undershooting their target of £19.0 billion for the quarter. Importantly this figure is 8.3% less than the previous quarter. This disappointing figure underlines the now widely held consensus that relying on banks to sufficiently hit lending targets for SMEs is not working.
“This struggle to lend illustrates how the banks are no longer the most efficient mechanism to distribute capital efficiently to small businesses. Moreover, they are being pulled in different directions: on the one hand Basel III regulations are instructing banks to hold more safe tier 1 equity capital versus loan portfolios; on the other, Project Merlin forces them to extend loans to perceived “risky” clients in the SME sector.
These latest figures show that the Treasury is right in looking at alternative mechanisms to channel finance to UK SMEs. Further information on George Osborne’s strategy of “credit easing” would be welcomed, however it is important that any Government policy does not crowd out recent innovations in the UK financing landscape. It is evident that the economy is craving a new alternative source of finance to step in where banks have failed.
Private sector start-ups such as MarketInvoice and peer-to-peer loan platforms are a perfect example of new businesses intervening to provide a flexible cost-effective financial service. The government must support these innovative financial platforms as in the long run they could revolutionise lending to SMEs, rather than relying on government to subsidise loans through state-controlled banks. It is hopeful that companies such as MarketInvoice could improve the credit conditions of the economy and play a vital role over the next 10 years.
Since trading began in February 2011, we have reached over £2.5 million volume in total SME invoices sold to global private investors across 50 SMEs. To date, 100% of all invoices sold have successfully received bids. This latest milestone demonstrates that a growing number of SMEs are finding MarketInvoice to be an effective flexible solution to their financial needs.”