Business secretary, Vince Cable, has heaped pressure on the UK's banks to increase their lending to small- and medium-sized businesses, after threatening them with new taxes on profits, bonuses and balance sheets if they miss lending targets.
Cable was telling MPs on the House of Commons Business and Skills Committee that the Government's Project Merlin deal with the banks was for one year only. He said that if targets were not met by the end of that period, then the banks would not be able to escape facing extra penalties. Larger UK banks have missed their Project Merlin target to lend to £19billion to SMEs in Q1 2011 by £2.2billion.
"It will be a question of the Government saying, 'Sorry, this agreement hasn't worked and we are absolved of any commitment on our part in terms of taxation'," he explained.
He said there would also be extra pressure put on the financial institutions to disclose the mechanisms they use to make sure credit is available to the smaller business sector. He added that the banks' use of the excuse that any shortfall in SME lending was due to lack of demand would not be tolerated: he said that he believed that banks had gone some way to "discourage demand" by charging high prices or showing lack of interest in lending.
Meanwhile the shortage of bank finance has put pressure on businesses to lend money to their customers to allow them to make vital investments.
Recently released data from the Finance & Leasing Association shows that the amount of money provided for vendor finance jumped to £1,171m in this year's first quarter, up from £942m in Q1 2010 - a rise of 24%.
Philip White, the CEO of finance company Syscap commented: “Vendor finance is increasingly seen as the way around the roadblock caused by the reluctance of some banks to lend to SMEs.”
“Vendor finance allows businesses to invest in the new plant, machinery and IT they need without having to go cap in hand to an unsympathetic bank. It allows UK machinery and IT suppliers to unlock the sales that wouldn’t otherwise go ahead.”
“If businesses can’t get the funding to upgrade out of date machinery and IT then the UK economy will become increasingly uncompetitive – so vendor finance is playing a really important role.”
In a survey of IT vendors commissioned recently by Leasing Life, 63% of vendors expect demand for vendor finance to increase in 2011. 
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