Is Project Merlin Enough to Open Funding Doors to UK Firms?

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Project Merlin, the long-awaited agreement between the Government and the UK’s four biggest banks to increase the level of lending to small businesses, has been welcomed by many in the business community.

Cashflow UK are leading invoice finance brokers offering impartial advice and access to over 50 factoring and invoice discounting providers.

The key question remains: will this initiative open up credit for firms at a time when they’re already struggling against a backdrop of weakening domestic demand and rising inflation?

The deal sees banks commit to lending £190bn to businesses during 2011, including a pot of £76bn specifically for small firms. The Bank of England will monitor whether these funds are being made available to businesses and will publish quarterly lending assessments to ensure targets are being met.

However, some intermediaries have expressed a degree of skepticism at the announcement, as Andrew Bullard, head of business at leading invoice finance broker Cashflow UK explains: “It is fair to say that the majority of financial intermediaries welcome any initiative that aims to take action to increase the level of funding to small businesses in the UK. However, despite the increased lending targets, the fact remains that credit to businesses will be provided on commercial terms.

“For many small firms, particularly those that trade within sectors deemed as high-risk by the banks or those with poor credit ratings, credit will continue to be hard to access and more cost prohibitive, with the banks remaining risk averse due to pressure from stakeholders and caution arising from the financial crisis.

“Despite good intentions, previous experience would suggest that other government initiatives to support funding for small businesses, such as the Enterprise Finance Guarentee (EFG), have not been successful. Evidence of this can be seen in figures from the British Bankers' Association (BBA) which show that average monthly loans to small businesses have declined by almost half since 2008.

“The fact of the matter is that continued cuts in public sector spending, rising VAT, inflation and fuel costs have already hit UK businesses hard – not to mention their cash flow – and the key question remains: will this initiative open up credit for firms at a time when they’re already struggling against a backdrop of weakening domestic demand and rising inflation?

“So while I support the intentions behind these initiatives, it remains to be seen whether this is a realistic solution to tackling the ongoing problem of limited access to finance.

“While access to finance remains a key challenge for businesses looking to raise capital, we are concerned that the level of understanding regarding funding options available to them remains low. It is therefore crucial that firms are aware of all their options and are guided by financial advisers in making the right choice, and finding the solution which best suits their needs.

“In reality, there is a whole range of funding opportunities from independent providers, which are very much open for business. Invoice finance, for example, can provide a long-term viable solution to help businesses improve cash flow by releasing cash tied up in outstanding invoices. This enables them to meet those vital creditor payments such as taxes, not to mention the more obvious supplier payments and of course, sufficient funds to foot the wage bill. The beauty of this form of funding is that it can grow in line with business growth.

Cashflow UK is a leading invoice finance brokerage specialising in factoring and invoice discounting and its specialist team of financial experts are able to offer impartial advice and find your client the best provider to match their needs.

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Andrew Bullard
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