It’s no secret the financial environment for SME’s in the UK is very tough. Bank finance is severely limited so many have to rely on raising equity to fund growth. But is there more that can be done to encourage investment in SME’s? Many think so.

A new report, back by the Business Secretary and the CEO of the London Stock Exchange, suggests the UK’s fast growing companies will face a £59bn funding gap over the next four years. Think tank, CentreForum, says the growth of small companies is being stymied by UK tax rules which treat debt more favourably than equity.

The publication suggests a range of measures could be put in place by the Government to support the growth of small companies.

The measures include the abolition of Stamp Duty on all share transactions or least on the markets for smaller companies such as those that are AIM listed. The CentreForum would also like the rate of Capital Gains Tax on shares to be reduced to take account of corporation tax already paid. A similar arrangement already exists for dividend income.

Another measure being called for is to include shares traded in SME markets such as AIM to be included in retail savers accounts such as Individual Savings Accounts.

It’s also emerged that plans to tighten the sale of certain investment vehicles such as Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT), will now be looked at again. Commentators suggest these are “vital” sources of investment for small companies amounting to some £700m worth of equity for smaller businesses. There’s been strong lobbying that tightening the marketing of these vehicles poses an unhealthy level of restriction on funds for entrepreneurs. It’s now emerged plans to restrict these schemes to ‘sophisticated investors’ will be looked at again. The FSA plans to consider these further before issuing a statement in April.