The Liberal Democrats are calling on the government to lend directly to small businesses to protect millions of jobs through the downturn.

Leader Nick Clegg told the BBC the government should lend directly to struggling firms through the Post Office, local authorities or by creating a new bank.

Nationalised banks such as Northern Rock should also be forced to keep credit lines open to small businesses, which employ around 13 million in the UK.

Small businesses have welcomed the proposals.

Spokesperson for the Federation of Small Businesses (FSB), Stephen Alambritis, said: “We support the intervention of the Liberal Democrats leader. The banks are not coming up with the goods despite the bank recapitalisation.

“We agree small businesses should have more alternatives.”

The FSB said it has proposed its own plan on ensuring small firms have access to credit through Regional Development Agencies but said funds made available through local authorities or the Post Office would also be acceptable.

“It is important small businesses have money,” Mr Alambritis warned.

“They are not getting it from their banks.”

The Confederation of British Industry (CBI) said it would make its own proposals on how to keep investment flowing into small businesses next week.