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Small businesses hit by lending squeeze

by LLB Editor
28th Dec 11 9:39 am

A number of small and medium-sized enterprises (SMEs) are unable to secure funds from banks despite the government’s Project Merlin agreement with lenders, according to a report.

About one in 10 (12 per cent) of SMEs said they had struggled to obtain finance in the last 12 months, a report by the Warwick Business School and insurance firm RSA found.

More and more SMEs are now offering stakes in their companies in return for cash – similar to the concept of the BBC’s Dragons’ Den – to fill the void left by lenders.

SMEs are at the heart of the government’s strategy for fuelling growth, while some 20 million people are employed by businesses of this size.

The UK’s biggest lenders and the Treasury drew up the Project Merlin agreement earlier this year in an effort to see bank hit targets for lending to SMEs in 2011.

The banks’ latest figures show they lent £56.1bn to SMEs in the first three quarters of the year and so are on course to narrowly miss their target of £76bn for the full year.

Some 15 per cent of manufacturing firms said they were struggling to raise money, suggesting the government’s plan to rebalance the economy by making more goods is in danger of stalling.

Almost a third (32 per cent) of SMEs said the economic downturn had a major impact on their company in the past year, while crime, red tape and severe weather were also cited as negative factors.

However, SMEs have become more willing to take risks in a bid to capitalise on new opportunities and the difficulties faced by weaker rivals. Over the next two years the companies surveyed plan to spend an average of £102,000 to grow their business.

A spokesman for the Treasury said: “The government is doing everything it can to reduce the risk of another credit crunch and improve access to finance for small and medium businesses.

“The Merlin agreement is making the banks lend more to business – the latest results show they have lent 10 per cent more to SMEs compared to last year.

“To complement this, at the Autumn Statement the chancellor announced that the new National Loan Guarantee Scheme will support up to £20bn of new loans to smaller companies.”

Business and enterprise minister Mark Prisk added: “The government is striving to make the UK the best place in the world to start and grow a business. Start-ups and small firms are right at the heart of our economic plan.”

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