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13 February 2012

Number of businesses taking on finance falls, despite Project Merlin

Reference number: PR/2012/05

FSB News Release

PR 2012 05

Number of businesses taking on finance falls, despite Project Merlin

The number of small businesses that have used a bank overdraft or loan has fallen in the past two years, according to a new member survey by the Federation of Small Businesses (FSB), even though Project Merlin was supposed to increase lending.

Polling more than 11,000 FSB members, the survey found that only 35 per cent of members used an overdraft in 2011, 11 per cent a secured bank loan and seven per cent an unsecured bank loan. This is a drop of -8, -3 and -4 per cent respectively since 2009.

Ahead of the full year figures on lending from Project Merlin due to be published today, the survey also found that 33 per cent of respondents had used their own savings or inheritance to fund their business. In each of the previous three quarterly Project Merlin results, the banks missed their targets for lending to small businesses and so this trend looks set to continue.

And, the figures show that new businesses between 1-2 years old could still be finding it hard to access finance as 70 per cent used savings and inheritance to fund their business, 34 per cent got money from friends and family and only 25 per cent used a bank overdraft.

To help small businesses access the finance they need, the FSB is calling for more competition in the high street banking sector, but also better promotion of the alternative finance sources that are available to small and growing firms.

John Walker, National Chairman, Federation of Small Businesses, said:

"The Project Merlin figures are likely to show that overall the banks have missed their lending targets to the smallest of firms – although some of the banks have already said they met their individual targets. We have long said that targets are the wrong instrument to encourage lending and growth. Even though overall lending is above target, this shows that money is going to bigger businesses and not new and fledgling firms that need it to take advantage of growth opportunities that are there even in these challenging times.

"Our research in the last two years shows that around a third of businesses are refused credit and this could be reflected in the fact that newer businesses are using more of their own money to fund their business rather than turn to the banks for help. What we need to see is better promotion of the alternatives available and for the Government to put in place their bold credit easing plans, which will help small businesses access finance on better terms."