THE head of a leading small business organisation has called on the Government to implement its "bold" credit-easing plans to allow smaller firms to get the money they need.

A study from the Federation of Small Businesses has indicated that the number of businesses using overdrafts or loans has dropped over the last two years, and chairman John Walker says this demonstrates that smaller companies are missing out on the money currently being given out by banks.

A survey of more than 11,000 FSB members revealed that just over one in three used an overdraft last year, while only one in 10 got a bank loan. A third of those surveyed ended up using their own savings for business funding.

The banks pledged to increase their lending to smaller firms as part of their Project Merlin deal with the Government last year.

However, while they beat Government-agreed targets for gross new loans, they did not come through on their promises to smaller firms.

According to figures from the British Bankers’ Association, gross new loans totalled £214.9bn last year compared to the target of £190bn. However, the £74.9bn lent to smaller firms fell below the state-agreed target of £76bn. Lloyds Banking Group, HSBC, Santander UK and Barclays all said they met their Merlin obligations, leaving Royal Bank of Scotland as the only lender to fall short.

Merlin data for the full year is due to be published today. The banks have previously nodded to Bank of England data saying demand for credit among SMEs had dropped in three of the last four quarters, but FSB chairman John Walker said fledgling businesses between one and two years old were struggling to get hold of funding.

He said: “The Project Merlin figures are likely to show that overall the banks have missed their lending targets to the smallest of firms, although some of the banks have already said they met their individual targets.

“We have long said that targets are the wrong instrument to encourage lending and growth. Even though overall lending is above target, this shows that money is going to bigger businesses and not new and fledgling firms that need it.

“Our research in the last two years shows that around a third of businesses are refused credit and this could be reflected in the fact that newer businesses are using more of their own money to fund their business rather than turning to the banks for help.

“What we need to see is better promotion of the alternatives available and for the Government to put in place their bold credit easing plans, which will help small businesses access finance on better terms.”