LSE: Government agency needed to boost bonds for SMEs It wants smaller companies to be able to use its ORB market as an alternative source of capital during periods of "economic contraction." ORB, which has raised £1.4bn for businesses since it began two years ago, has mainly been used by large companies. However, the LSE is understood to have told the Treasury that a Government-backed funding agency, which would back a portfolio of small business debt, could help remove barriers such as a lack of liquidity, the difficulty in rating the credit risk of small, often private businesses, and relatively high listing and advisory fees associated with bond issuance. Such an agency could provide a new source of debt finance that would benefit small companies and savers if it raised capital for its lending activity from retail investors through ORB, the LSE said. Pointing to precedents in Germany and the US, the LSE believes small and medium-sized businesses could apply for loans through their bank. Credit risk would be shared equally between the bank and the Government agency. Retail investors could be encouraged to participate by making small bond investments qualify for tax relief, through a bond-only ISA. Last week, the Federation of Small Businesses said an agency modelled on the Small Business Administration in the US could ensure that the "voice of small enterprise isn't lost among competing Government priorities." John Walker, of the Federation of Small Businesses, said that a UK equivalent could "defend the interests of small businesses." The FSB believes such an agency could provide support in areas such as exporting and access to public procurement. Tim Breedon, chief executive of Legal & General, is expected to publish his report into alternative methods of financing this week.