The Federation of Small Businesses (FSB) welcomed the news that Project Merlin has come to an agreement but still believes that more needs to be done to change the structure of banking in the UK to promote growth, especially for small firms. The news that banks have agreed to lend £190 billion – £76 billion specifically for small firms – is a welcome step. However, the FSB will wait to see how the performance metrics will be implemented and how far off the target banks would have to be before repercussions will be taken, as well as ensuring how they will make certain that the smallest firms and new start-ups will receive vital cash. The FSB is also concerned that the additional £1.5 billion will only go to businesses looking to receive between £2 million and £10 million in equity finance and so will not hit the smallest of businesses that need it most. Recent FSB survey figures have showed that around 84 per cent of small businesses are not approaching the bank for credit, either because they have already been refused or because the cost is too high. And firms which do use the banks as their main source of finance are being penalised by high interest rates – at a time when the base rate is at an all time low Small firms don't have a huge amount of scope in accessing finance, unlike larger businesses. More competition in the sector will mean greater competitiveness in terms of the cost and the services provided. With the vast majority of small firms banking with the main high street banks, it is vital that the structure of the banking industry is changed to create a more stable environment. John Walker, National Chairman, Federation of Small Businesses, said: "Today's announcement should not be allowed to let the Government or the banks off the hook, and is a preamble to what we hope will be bigger announcements from the Independent Banking Commission. While we welcome the intention to lend more to small businesses, we still need to see a major restructure of the sector. "Many small firms aren't going to the banks to access finance and credit and the main problem they face is the cost of credit. Many small businesses have lost faith in the sector and are looking at other means of finance – and it is the smallest of firms that need finance most. "To achieve robust economic recovery, the smallest firms and start-ups need to have access to finance, but today's commitments – as with previous lending targets – are unenforceable."

Commenting on today's banking statement Business Secretary Vince Cable said:

"Today's agreement is a good step forward for British business," says Vince Cable. "Banks have made a commitment, with independent monitoring, to increase credit to UK firms and especially to small and medium sixed enterprise.

"Tougher mandatory disclosure rules covering the top eight executives outside to the board will give the UK the most transparent financial regime in the world, while linking executive pay to lending gives businesses a crucial assurance that bank executives have a stake in the real economy.

"This is part of an ongoing process of reform of the banking sector. We are in no way pre-judging the big structural questions being addressed by the Independent Commission on Banking, including competition and the structure of banks."

Commenting on the announcement of the ‘Project Merlin’ agreement between the Government and the banking sector, David Frost, Director General of the British Chambers of Commerce (BCC), said:

“The argument surrounding bankers’ bonuses is one for discussion between the banks and the Government. But it’s my belief that this is a separate issue from the far more important and long-standing challenge around small business lending.

“Throughout the recession and its aftermath, businesses have told us that their relationships with lenders have suffered tremendous strain. Poor or opaque decision-making, over-centralised processes and a lack of good relationship managers on the ground have caused a crisis of confidence between business and the banks. These problems are still all too real to small- and medium-sized companies across the UK.

“While the big banks’ renewed commitment to small business lending is welcome, ministers and the banks need to focus their energy on improving frontline services for SMEs. Without clear lending processes and more sensible decision-making at a local level, many businesses will still be reluctant to ask for loans and big net lending targets won’t be met.”

On the announcement regarding the extra £1bn added to the Business Growth Fund, David Frost said: “The extra £1bn added to the Business Growth Fund is good news for small and medium businesses, particularly for those based in regions across the UK that will be hit the hardest by public sector cuts.

“We want to see a radical package to boost enterprise growth in next month’s Budget, with the Business Growth Fund and all other initiatives focused on generating stronger companies, more companies, and jobs.”

This outgoing deal in bank lending will mostly likely be successful achieving this £10bn this year.Since,Economists have been saying the recession is over, however it is kind of hard to believe. Credit access is nevertheless tight, as customer lending, or loans lent to individuals, is nevertheless at a 2 year lull. I found this here: Consumer lending still slow to recover from recession Requirements to get loans are becoming far stricter, as borrowers have to meet more selective criteria to qualify for auto loans, unsecured loans, mortgages and other lines of credit. Banks are loathed to repeat mistakes that made them run for government cover.