Banks lend more to businesses, but less to SMEs

The UK's five major banks lent more to UK businesses in Q3, the latest figures collected by the Bank of England have shown.

However, lending to small and medium-sized enterprises fell slightly, from £20.5 billion in Q2, to £18.8 billion in Q3.

The figures form part of 'Project Merlin', which the UK's five major banks, including Barclays, HSBC, LBG, RBS and Santander signed up to in February this year, stating a capacity and willingness to lend a total of £190 billion of credit to businesses in 2011, £76 billion of which to SMEs.

So far this year, the banks have lent a total of £157.7 billion to businesses, including£ 56.1 billion to SMEs. However, despite the fact that the figures demonstrate a willingness to lend, Project Merlin does not address all of the critical factors relating to business finance, according to Terry Scuoler, Chief Executive of EEF, the manufacturers' organisation, who said:

"Today's data show's Banks are at least now willing to lend. However, the cost of credit and those terms and conditions outside the headline rate remains a major concern, especially for SMEs. These critical factors are not addressed by the Merlin Agreement and, at a time when confidence is precarious in the face of weak demand in our key markets, we need to be doing all we can to encourage investment to happen now.

"Government must commit to pushing for greater competition in the banking sector, encourage more sources of finance outside of banks, and seek stronger relationships between banks and businesses."