Small Talk: Osborne needs better trick after Merlin failed to work wonders

So farewell then, Project Merlin. Once HSBC unveils its 2011 results today, we will have heard from all five banks strong-armed into signing up to binding lending targets a year ago. And though the Government has often claimed that Merlin is an example of how it is forcing the banking industry to do its bit for our stuttering economy, there has been no attempt to extend the project into a second year.

Is that because, in the end, the banks missed their targets for lending to small and medium enterprises (SMEs), which continue to find credit more constrained than larger companies? Well, maybe, though the failure's significance has been overplayed – the Bank of England says the banks lent ?74.9bn to SMEs, just ?1.1bn shy of the ?76bn target. Pretty close.

Instead, the new hope for cash-starved SMEs is credit easing, the scheme that will take centre-stage in George Osborne's Budget in a little over three weeks' time. He wants to guarantee ?20bn-worth of bank lending to companies with a turnover of less than ?50m, with two aims. First, says the Chancellor, the guarantees will persuade the banks to offer credit, and second, they should be able to do so at cheaper rates. That rests on them being able to raise funding more cheaply from wholesale markets that know they can depend on a AAA-rated Government guarantee.

Here's the thing, though: the message from the banks is that they do not need credit easing any more than they needed the Merlin targets. It is reduced demand for lending, the banks insist, that has depressed the statistics, not their reluctance to extend credit.

In the end, it is almost impossible to test that argument one way or the other. That plenty of SMEs claim to have problems accessing affordable lending is no proof of a banking failure – those loans might not have been approved in even the loosest periods of credit.

We should worry about credit easing, however. For one thing, it is not at all certain that government guarantees really will lead to cheaper credit. HSBC does not fund its loans from the wholesale market, while Santander and Barclays already pay bargain basement rates. Even Lloyds and Royal Bank of Scotland can now fund at abnormally low rates courtesy of the European Central Bank, which will later this week offer hundreds of billions of euros in absurdly cheap three-year money.

More fundamentally, do we really want to put taxpayers on the hook for loans to private businesses, particularly loans that they will not have a role in approving? Though taxpayers will make a small return on the scheme – the only way to get it past European Union State Aid regulations – there's every chance of significant losses when SMEs default.

Initiatives such as Project Merlin and credit easing are appealing because they're eye-catching. The question is whether they're useful solutions to the problem (or even whether there is a problem, given what the banks say about demand for credit). There is certainly no evidence that Merlin resulted in any SME getting a single pound of funding it wouldn't otherwise have been able to access to. Nor does credit easing promise much more.

A logical way to cut the cost of drinking supplies

Waterlogic, in its own words, is a supplier of "mains attached point-of-use drinking water purification and dispensing systems designed for environments such as offices, factories, hospitals, hotels, schools, restaurants and other workplaces". In English, it makes those machines that are plugged directly into your water supply, rather than depending on bottles that have to be replaced.

It's not a bad business, and Waterlogic is a market leader: it has a presence in 50 countries, and in the UK supplies everyone from Belmarsh Prison to Google. Customers like the lower costs – including to their carbon footprint – from the fact that bottles don't have to be continually replaced, and more are upgrading to Waterlogic's technology.

Having raised ?25m of funds from an IPO, Waterlogic has been on a mini acquisition spree to expand its international business, including the purchase last week of Aqua Service, which operates in Norway and Sweden. The broker Liberum expects the latest deal to add value, and says the company's market value does not reflect this or the effect of other acquisitions. Waterlogic shares trade at 172p ahead of a trading update due this week, but Liberum's target is now 221p.

Coal discovery fires up Beacon Hill

The commodities boom may have eased back as the global economy has slowed, but new discoveries remain precious. Alternative Investment Market-listed Beacon Hill Resources says it has exactly that: an independent study of its mining project in Tete, Mozambique, published last week, suggests that it can be a valuable producer of scarce coking coal – important for steel production – for a decade or more.

The majors, in the form of Rio Tinto and Vale, are in the region too, but Beacon Hill has been able to upgrade existing infrastructure at its Minas Moatize asset in order to produce coking coal. The company has no debt and other assets in Australia, but this looks to be its most exciting project.

The broker Collins Stewart has set a new target for the shares, which currently trade at 10.25p, of 38p.

Small Businessman of the Week: Gary Martin, founder, Table Art

"We've adjusted our business in the context of the downturn: we used to do big and expensive themed events but when that market declined, I spotted an opportunity – we were optimising for table centres but at that time the trade was quite old-fashioned and I decided to do something that incorporated modern technology.

"Although table decorations might seem like a luxury item, we can actually save money by incorporating the lighting into the pieces – you can get a big effect from something that packs down quite small and is relatively inexpensive to transport. So for companies that want to create something that is a bit different, as many still do, this is a way to something affordable. We've worked with everyone from BP to the Ryder Cup.

"The trick for us has been to work out how to harness technology that is already in existence in a new way that helps us deliver an affordable proposition. We're already working on whole-room lighting solutions that you'll be able to operate with a remote control rather than miles of cabling – developments in battery technology make that so much more affordable."

Table Art is a Warwickshire-based business that provides illuminated table decorations to private functions and corporate events.