One problem for SMEs in getting access to corporate debt markets is that the costs of estimating their credit risk would be too large for the size of bond issue involved. Credit rating agencies are pointless for sovereign debt, where all the information required is readily available to investors, useful for large enterprises, but too expensive for SMEs. Securitization of mortgages got round this difficulty by pooling mortgages and then slicing the pools into tranches: that all ended in disaster because the quality of mortgages fell as lenders no longer had to hold them to expiry, and because high correlations of default made the best-quality tranches much less secure than investors (and ratings agencies) supposed. The report recommends an "Aggregation Platform" to bundle and securitize SME loans: this would have the same problems as bundling mortgages, but default correlation would be higher and recovery rates much lower. And no investor is going to make the same mistake again, nor even the ratings agencies, at least not yet.
The report notes that
The Taskforce has sought to estimate a level of finance that would be required by businesses. This requirement could be met with retained earnings or equity, but the analysis focuses on how much additional credit is likely to be needed.Why not encourage equity investment instead of exploring divers unsound proposals for making borrowing easier? The report doesn't say.
Let's at least stop using the tax system to discriminate against equity investment. That means allowing dividends to be paid out of gross earnings, as is debt interest. We can get some of the money back by taxing dividend income at the same rate as earned income.