Invoice finance industry to pick up Project Merlin failings?

The Bank of England governor Mervyn King recently admitted that UK SME’s were actually ’suffering’ due to the reduction in bank lending which goes counter to the banks own continued claims that SME’s have no appetite for borrowing.

King said of the problem that it was one for Government to remedy and not the central bank, and whilst he was downgrading the UK’s growth forecast for 2011 from 1.8% down to 1.5%, that there was also no monetary policy steps that would yield an improvement in credit access for small and medium sized enterprises.

The statement comes just before the Bank releases its second quarter results for the Project Merlin deal, which aims to increase the amount of capital lent to businesses, particularly SME’s, by agreeing lending targets between the Government and the five biggest high street banks.

Mr King was quoted saying “This is a problem of the structure of the banking system, and questions about the allocation of credit….”, he added “The amount of lending by the banking system to non-financial companies is falling. It’s been falling for some while, and it’s still falling. This is a natural consequence of the deleveraging of the banking system.”

If those comments didn’t say the exact opposite of the British Bankers’ Association (BBA) stance then the following somewhat clarified Mr King’s stand somewhat resoundingly.

He continued, “But let’s be clear about it, it is falling; and particularly problematic for small companies because at least big companies can go to the stock market to issue equity…… Small companies don’t have that opportunity, and they’re suffering as a result.”

The fact remains that bank lending is down, and for many, Mr King’s account will resonate more than the banking industry’s stance that lending is down due to firms having no appetite for borrowing.

On the subject of ‘appetite’, various polls, surveys and reports over the last year rather than portraying a lack of appetite for borrowing, suggest if there was a lack of appetite, it was for the overpriced facilities which have effectively priced SME’s out of the market.

Although the rates at which the banks themselves source their monies has remained at an unprecedented low, business loans and business credit cards remain uncompetitive, often with rates reaching into the 20% plus bracket. This low availability of credit, and high interest rates for what credit is actually available has created a gloomy environment for small businesses trying to get access to finance.

So what about the term ‘appetite’?

The stance from the British Bankers’ Association (BBA) in justification for June’s banking report which showed lending had decreased by a total of £2.5 bn, is that small businesses do not have an appetite for borrowing?

David Brooks, statistics director of the BBA, said: “Businesses are putting off expansion or investment plans and limiting borrowing.”

But the BBA take on the figures is obviously going to be made with a bit of positive spin surely? Perhaps a better viewpoint of the term ‘appetite to borrow’ can be via an example, as the BBA standpoint fails to take into account the rising costs of bank borrowing despite an all time low in interest rates.

An individual may have an appetite to watch Premier League football but not an appetite to pay £1200 per year for a season ticket and so some may have more of an appetite to stay at home and get Sky Sports or ESPN or go to a pub and watch the Premier League?

The BBA take on the word ‘appetite’ would suggest that in this example, no one other than those with season tickets have an appetite for Premier League football!

Tell that to the millions of Sky Sports and ESPN subscribers, and that according to YouGov research, over a third of British adults aged 18 to 34 are planning to watch this season’s English Premier League on TV outside of their own home, ie in the pub.

There may not be an appetite for a small business loan for £10,000 at 18% APR, and  putting up the family home as security in order to get it, but that doesn’t mean there are no people with appetites to borrow £10,000 to put into their businesses?

The figures show that despite the implementation of Project Merlin, small companies are still not getting the financial support they need to grow, employ new staff and become established. Project Merlin missed its first quarterly lending target for 2011 by some £2.2bn, showing that the scheme is currently failing to provide the financial support SME’s require.

Invoice finance industry to pick up Project Merlin failings?

It is clear that the times ahead are not going to be plain sailing for the UK’s small and medium sized businesses and whilst the market for traditional bank borrowing has taking a further dive, the invoice finance industry is in contrast, continuing to grow.

Many UK factoring providers are reporting very strong rates of growth and new client take ups, and in turn ramping up their operations to meet demand.

Whether the invoice finance industry, in it’s supply of factoring and invoice discounting can plug the multi billion pound gap left by Project Merlin remains to be seen, but there are certain factors involved that put the industry in a firm footing to fulfil those obligations.

One of which is in respect of trust and transparency. Unlike the banking industry, the invoice finance industry doesn’t have market wide mis-selling scandals and the like marring its reputation. The providers are smaller and with competition amongst providers in abundance, which in turn serves the best interests of the small business, there are many deals to be sought from shopping around, unlike in the market for business loans from the UK’s banks.

Factoring Finance Ltd have more than 30 years experience in finding the best invoice and asset backed finance solutions for UK business.

Factoring Finance Ltd are independant brokers and as such, we are not tied to any one Invoice Factoring, Invoice Finance, or other Commercial Finance provider. While we are based in the North West, our broker network extends across all of the UK.



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