CFI: News Review
Project Merlin and a wizard of an idea
by Rob Lankey, head of lending, Aldermore Commercial Mortgages
When the chancellor an- nounced the details of Project merlin last month, the me- dia’s attention immediately focussed on bonuses and ‘fat cat’ payouts. However, merlin also covers lending to busi- nesses and is designed to en- courage the four biggest banks - HSBc, Barclays, Bank of Scotland and Lloyds Banking group - to lend more to small firms. the big four have commit-
ted to making £190bn of credit available to businesses in 2011. of that amount, £76bn will be made available to small and medium sized businesses, an increase of approximately 15%, or £10bn, over last year. the banks have also commit- ted to provide an extra £1bn of equity capital over three years to the Business growth Fund, which is designed to help small firms in hard-pressed ar- eas of the country. Finally, the banks have said they’ll stump- up £200 million of capital for the prime minister’s Big Soci- ety Bank, which aims to help community projects. as impressive as the Project
merlin commitments sound, the acid test will be over the coming months when banks have to put their hands in their pockets and demonstrate that they’re good to their word. unfortunately, the initiative
was dealt a bitter blow dur- ing February when the times newspaper reported that Barclays, whose former chief executive John Varley was an
originator of Project merlin, was no longer providing any form of asset finance support to businesses with a turnover of less than £5 million. a small business owner
who featured in the times’ report and who has been a Barclays customer for 29 years, was shocked to discover that his enquiry for finance was turned down before it even reached the application stage. He explained in a subsequent blog: “We did not get so far as discussing any terms, any financial figures, or how my business had performed fi- nancially over the last three years... the whole conversation lasted no more than a couple of minutes. the relationship manager was not turning our company down because we did not fit their risk reward requirements; he was simply unable to provide a quotation because he was stating the new corporate policy.” i’m sure commercial mort-
gage brokers throughout the country can give similar ex- amples of big banks declin- ing enquiries from their own clients without even consid- ering the details. i’m sure this is not what george osborne had in mind when he rubber- stamped Project merlin. this apparently offhand attitude of big banks to smaller business- es does raise a very important question: is the end of tradi- tional relationship banking now dead? When we talk to owners
of small and medium sized businesses, most believe that maintaining a long-term re- lationship with their primary relationship bank and having a well-conducted account will stand them in good stead and
help support future applica- tions for funding. that appears to no longer be the case. if anything, having multiple ac- counts with one bank appears to be a distinct drawback, be- cause it increases a company’s risk profile. We hear all too fre- quently about companies be- ing told that that big banks are unwilling to extend credit or renew existing facilities, even though their credit profile has remained unchanged. i believe that we have now
moved into an era in which the concept of ‘one stop shop’
What do SMEs really think about the future?
We recently conducted our own research to understand how small businesses are feeling about the future. We contacted 237 SMEs across the country and, perhaps surprisingly, the majority (58%) told us that they had increased their turnover during 2010 and three- quarters of them expected to do the same again in 2011. What’s more, 48% of
businesses were confident about the prospects of the market sectors in which they operate, with just one in five being unconfident about the state of the economy impacting on their growth prospects. Some 45% of business owners said they expect to increase staff levels this year. They did, of course, also
express some concerns. Some 80% were worried about increased costs as
banking no longer exists. a bank which provides transac- tional and overdraft facilities should no longer be thought of as necessarily being the first port of call for funding for ad- ditional assets such as com- mercial premises, plant and equipment or funding for an mBo or acquisition. Specialist finance firms are not only will- ing to consider such applica- tions and tailor deals to meet firms’ specific requirements, but also avoid the risk of small businesses having all their fi- nancial eggs in one basket.
the result of rising inflation and 90% said they expect to feel some impact from the government Spending Review. Just over a third said that the VAT increase will affect their cashflow and employers national insurance, business rates and fuel duty were also expected to have an impact. When it came to finance,
68% were worried that the cost of borrowing will increase over the next 12 months and 57% said they didn’t intend to increase their level of borrowing over the next twelve months. In summary, small
businesses appear to be more confident about those factors which are in their control, as opposed to factors which are dependent on government policy, such as inflation and interest rates. Small businesses are often quoted as being the engine of recovery and they’ve shown themselves to be a resilient bunch, but will initiatives such as Project Merlin really make much of a difference? Only time will tell.
mortgage introducer MARCH 2011 49
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