Under the Merlin scheme, Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander have pledged to lend £190bn in 2011.
However it is understood that banks are £2bn behind on small business lending in the first quarter of 2011.
Of the £190bn for 2011, £76bn of credit should be made available to SMEs this year, however, lending in the first three months is expected to collectively total £16.8bn compared with the target of £19bn – a shortfall of about 12%.
Last week, Business Secretary Vince Cable warned that the banks could face higher taxes if they did not raise their business lending.
The Merlin deal was agreed back in February, and the combined £190bn target compares with the £179bn the banks collectively lent in 2010.
Cable said last week that he expected the banks to miss the lending targets, and that they would have to make up any lending shortfall over the rest of the year.
“It’s a deal with the banks, If the they don’t deliver, there are options open to the government, including taxation.” Cable said
The British Bankers’ Association has repeatedly said that its members are doing all they can to increase lending, business organisations such as the Federation of Small Businesses say its members are continuing to struggle to get bank loans and other credit.
David Frost, Director General at the British Chambers of Commerce, said: “The Project Merlin figures are disappointing, but they are only a part of the story for businesses. Many companies complain about strained relationships with banks both during and after the recession. Over-centralised processes, unclear decision-making and a lack of proper, local relationship management from banks, mean that in many cases, business customers have been put off applying for finance.”
“Banks should reconsider how they communicate with business customers, and be able to make decisions at a local level about their financing needs. Greater transparency, and local support from banks, go hand in hand with improved amounts of financing available to businesses.”
Jason Stockwood, CEO, Simply Business, the largest small business insurance provider in the UK commented on this: “The Government is right to be annoyed at the banks for failing to lend enough to small businesses however they are also to blame for putting such a toothless agreement in place to begin with. Project Merlin does not include enough of an incentive for the banks to ensure the money available is actually accessible to the businesses that need it. From my contact with startup and small businesses, it is clear that securing bank funding still involves a massively bureaucratic and slow application process that drains time and resource with no guarantee of success.