Barclays, HSBC, Lloyds Banking Group and RBS have agreed to make £190bn of new credit available to businesses in 2011, £76bn of which will be available to SMEs.
However if demand exceeds this, the banks have pledged to lend more.
David Grant, head of UK Business Mortgages at Christie Finance, the commercial finance broker and sister company to Christie & Co, welcomed the deal but was cautious about its merits.
“Given our 2010 experience of increased year on year activity, we would hope the majority of this £76 billion is directed towards new transactional business and not just simply re-priced, refinanced and re-cycled existing small business debt,” he said. “Much of last years lending was just that and thereby enabled the Banks to conveniently label it ‘new’ lending.”
Obstacle to recovery
Simon Hughes, UK managing director at Christie & Co, added: “We very much hope that a proportion of this new lending will free up some of the pent up demand from potential business purchasers in our sectors. The provision of finance remains the single largest obstacle to a sustainable recovery in our markets and the announcement today will be welcomed by existing operators and new entrants alike.”
The Bank of England will now also collect and publish the banks’ aggregate gross new lending on a quarterly basis.
However the Forum of Private Business (FPB) questioned how the banks’ expect to increase the flow of credit to smaller businesses.
Credit flow
Phil Orford, chief executive of the FPB, said: “The banks say demand is down. They say applications are running at an 80 per cent acceptance rate. If this is the case, how do they intend to increase lending to small firms by 15 per cent?
“I believe the answer is that they must review risk criteria and be less punitive on viability assessments – and make a particular effort to cut down on sector-based discrimination.
“The banks must be more proactive in securing up-to-date financial information from their clients and they need to communicate more clearly to applicants what the key assessment criteria are, so applications are more compliant with the lenders’ needs.
“The message now to all small businesses is that the banks have committed to lend more. Test them on their commitment and get your applications in.”
As well as increasing lending, Project Merlin will also see the banks pledge an additional £1.2bn to support regional growth and the Big Society. £1bn of this will be used to increase the size of the Business Growth Fund, which is available to growing businesses with a turnover of £10m-£100m.