In February of this year it was announced that Project Merlin, the attempt by the Bank of England to force banks to increase lending to British small businesses, had failed miserably.
HSBC, Lloyds Banking Group, Barclays, RBS and Santander UK were tasked to make it easier for smaller firms to access credit. Yet in reality total net lending from the five main UK banks' fell in every quarter of 2011, with £74.9bn lent to smaller firms, as opposed to the £76bn target.
Compare this £1.1bn shortfall with the YouGov figures released earlier this month, which revealed that British small businesses pay over £2.3bn to banks in fees every year. The research, conducted with CashFlows, showed that 24% of small businesses pay an average of £1,792 on business banking services every year.
At a time of economic difficulty, reiterated by recent GDP figures showing that the UK is in the deepest recession for more than 50 years, this seems like a further blow to the UK small business economy.
Yet research from NESTA in 2009 showed that the 6% of UK businesses with the highest growth rates generated half of the new jobs created by existing businesses between 2002 and 2008. These businesses are no small deal and should be treated with the respect they deserve.
Which begs the question – why aren’t banks doing all that they can to support these potentially economy-saving businesses?
There is plenty that our banks could improve to support our small business owners, and lowering banking fees is just one example. From a banking point of view, they certainly should be pulling their socks up – in the same CashFlows survey, 52% of those questioned said they would move their business current account to another provider in order to receive lower cost business banking services.
Banks should start to think outside the box – what about offering a payment of a base rate interest on business accounts? Our research showed that this could contribute £330m to the UK economy – no small sum in the current climate.
Financial service providers need to start thinking about how best to service British small and growth businesses – only then, can the British economy stand a chance at revival.
Nick Ogden is CEO and founder of payment solutions company CashFlows. A serial entrepreneur, he founded WorldPay before it was sold to RBS and has since been the chairman and CEO of The Voice Commerce Group. In 2010 Nick was awarded Entrepreneur of the Year at the National Business Awards UK.