Government to drop SME bank lending targets

The Government is expected to drop small and medium-sized business lending targets in the face of evidence that lending to SMEs is down despite the Project Merlin initiative, and in fact the number of small loans being made across has declined across the board.

The Bank of England is expected to publish the final project figures for the initiative, which are understood to demonstrate that bank lending declined in 2011 by £9.6 billion from 2010’s £179 billion figure.  Also, 2012’s lending activity – particularly short term loans made to SMEs – is expected to fall by 5.7 per cent, according to Ernst & Young.

This has led firms to turn to alternative sources of lending, such as instant cash loan providers, crowdfunding webisites, and invoice auction websites.  In order to regain market share, some traditional lenders have taken more innovative approaches in select instances, such as entering into agreements to lend against goodwill, customer relationships, brand value, intellectual property rights, and other intangible assets, which is a marked departure from more traditional lending where providers ask for a borrower to guarantee a loan against the business in question’s physical assets, such as equipment or property, or even the personal assets of a borrower, such as their house.

Accountancy group Corporate Finance Network’s chairman and founder, Kirsty McGregor, said that banks have traditionally only taken security over physical assets, but some have chosen to instead lend on intangible ones in an effort to provide better access to credit to companies in need of capital for growth.  However, the chairman did warn that lenders will need to make clear value determinations prior to lending, most likely accomplished by assessments carried out by experts.

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