The London Stock Exchange, in recognition of the fact that small businesses in the UK are being denied support from banks, has called for a new asset class which they say government should support.

It is the contention of the LSE that boosting bonds for SMEs would enable them to expand and grow their businesses. The LSE feels that small businesses should be able to utilise the Organisation for Responsible Businesses market during times of economic contraction as an alternative source of raising capital.

In the two years since ORB has been operating, it has raised more than £1.4 for UK businesses but those funds have been primarily taken up by large enterprises. In the meantime, it is thought that the LSE advised the Treasury that there is a need for a funding agency that is government backed.

The purpose of this agency would be to back bonds for SMEs in order to deal with a lack of liquidity. Furthermore, there is a need to do something about just how difficult it is to assess the credit rating of smaller private businesses and to offset the high fees in relation to issuing bonds.

The LSE further believes that government should closely examine similar models from the US and Germany where SMEs could actually apply directly to banks for loans and credit risk would not fall solely on banks. It would be shared with government.

In turn, investors in retail would feel confident in making small investments in bonds in order to be eligible for tax relief which would come through an ISA for bonds only. Finding ways to provide funding for small businesses in the UK is a priority of groups such as the Federation of Small Businesses. Spokesperson for the FSB said that it is the groups intention to defend small business’ interests.

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