I have seen the recent updates on lending figures from banks to SMEs, however it is clearly still too early to tell if Project Merlin is working, given the amount of time that has elapsed and the evidence available.
That said, I am still not overly hopeful for the initiative. Funding for SMEs, an extremely important issue, seems to have become a political football.
The situation with Project Merlin is very disappointing. There is no real incentive for banks to lend to SMEs. Banks will always look at how profitable it will be for them to lend to a business and the big banks usually lean towards investment banking because it is more profitable and it’s a much faster way to make money.
I would question their real level of interest in lending to SMEs, because bankers are not incentivised in the current environment to put their heads above the parapet for fear of losing their jobs if they make a mistake. Getting funding from banks is going to be a very, very slow process for SMEs.
SMEs need people who understand their business and can actually go out and see their company in action. These people are entrepreneurs, who are optimistic by nature, but several SME customers have been very disappointed by the banks’ treatment of them. Some say that if they treated their own customers that way, they would not even have a business.
The ABL take on things is that we do things differently to the banks. We take the time to go out and talk to people at the business. The decision as to whether or not a business will get funding may not always be yes. But at least the business owner knows they are talking to the person who is making the decision. That’s what ABL can give to SMEs.
It’s bad enough that businesses have to wait forever to get a decision from banks; they don’t even get to speak to anyone who makes the decisions.
There are around four or five million SMEs in the UK, depending on how you define them. I think when it comes to these businesses; the government has missed a trick. They should have set up an SME bank to get business, and Britain, back on its feet. I would love to see them do something like this. It could be structured like the Post Office or Northern Bank and be sold once it becomes profitable.
The economy is very reliant on SMEs; they are great drivers of growth. This is something the government says regularly. But often, as we all know, what the government says and what they actually do can be two very different things.
SMEs employ an enormous percentage of the people working in the private sector. They can be fragile of course, some can go bust. But if they survive, in my experience, they grow and grow overwhelmingly quickly.
Starting from a low point, these entrepreneurs can double or treble their businesses in a year. But the government does not nurture and support SMEs enough. At the moment there is the potential for more lending on offer from ABL than there is from banks, despite Project Merlin’s intentions. The big banks are actually moving towards getting their business overdraft customers to the ABL arm instead.
If you look at overdrafts they tend to work off balance sheets and ratios, the banks do not go and see the business. It is a more secure form of lending. That’s why our industry has had a better lending track record than mainstream banks.