14/11/2011 10:35 GMT

UK Entrepreneurs: Project Merlin Misses Small Business Lending Target By £1bn

Project Merlin, a government-brokered deal to free up bank lending to small- and medium-sized enterprises (SMEs) in the UK, has missed its targets for the third quarter by nearly £1bn, as larger businesses see financing increase.

Barclays, the Royal Bank of Scotland, Lloyds Banking Group, HSBC and Santander agreed in February to lend a combined £76bn in 2011, and Monday's figures showed that they are behind their third quarter target of £57bn. The agreement also set targets for overall lending, which the banks are on course to beat, showing that larger companies are not suffering from the kind of credit crunch that is hitting SMEs. The banks have lent £157bn in the first three quarters of the year, heading for a full-year target of £190bn.

John Walker, national chairman of the Federation of Small Businesses, said: “While the banks are on course to meet lending targets to all businesses, they have yet again missed the small business target. We have said that these targets are politically driven and don’t address the lack of competition in the sector, as the main five banks control around 85% of the small business banking market."

Walker called for new lines of credit and more competition in the small business banking market. He also said that the chancellor should make financing available for small firms through a package of credit easing - rolling small business loans together into a single financial instrument that the government would commit to buy, thereby reducing the risk of lending for the banks.

Osborne first mentioned a potential package in his speech to the Tory conference in October, and is expected to give further details in his autumn statement in November.

It is an inauspicious start to the government's "entrepreneurship week", which began on Monday. The coalition has rhetorically committed to building the UK's small business sector, with a number of initiatives aimed at releasing capital.

On 10 October, the government announced £95m in funding from the Regional Growth Fund, which it expects to be levered up with the addition of £500m in private sector investment. It has also reduced the number of steps needed to register a business and opened up portals to try to encourage SMEs to export services overseas. However, financing, skills and failing business confidence across the board are weighing on these initiatives.