UK tries to give SMEs lending boost with savings change

LONDON (Reuters) - British savers will be encouraged to invest in small and medium-sized companies in a latest attempt by the government to give a boost to funding for the sector.

New rules for tax-free individual savings accounts (ISAs) will simplify direct investment into small firms, Britain's finance ministry said.

More than 1,000 companies listed on London's Alternative Investment Market (LSE.L) will be eligible under the new rules which will allow any shares traded on recognized stock exchanges across Europe to be held in ISAs, it said.

Many small and medium-sized companies have complained that they struggle to raise funding from banks.

Despite attempts by the government and the Bank of England to get credit flowing to them, data showed on Monday that lending to non-financial businesses fell by a net 1.27 billion pounds in May. Within that, lending to smaller firms dropped by 452 million pounds.

ISA funds hold around 391 billion pounds ($593 billion) in savings, almost half of which is in stocks and shares, the ministry said. ($1 = 0.6593 British pounds)

(Reporting by William Schomberg)