New research shows that there has been an increase in the number of start-ups applying for private funding using the Government’s Seed Enterprise Investment Scheme (SEIS).
According to the research, the number of start-ups applying for SEIS in the year to 5 April 2014 is up 73 per cent year-on-year, taking the number of applicants to 2,852 from 1,644.
The Government introduced SEIS in 2012 to stimulate investment in start-ups and early stage businesses by offering favourable tax breaks to private investors, which include 50 per cent income tax relief on investments of up to £100,000 a year. It applies to shares issued on or after 6 April 2012.
The scheme provides a new option for start-ups looking to finance their growth and is intended to recognise the particular difficulties which very early stage companies face in attracting investment.
Since the onset of the financial crisis, both new ventures and early stage businesses have found it difficult to borrow from the banks, as they have been trying to minimise risk, but with SEIS investors benefit from an increased number of firms needing cash and start-ups benefit from access to it.
The Government is also offering businesses and investors the Enterprise Investment Scheme (EIS), which is aimed at slightly larger, longer-established firms. This scheme was expanded in 2012 and now offers a higher annual fundraising limit of £5m and is open to a wider pool of businesses.
With both schemes in operation, it means that the full spectrum of small businesses, from start-ups to larger organisations can access enterprise finance from private investors and offers investors a wider choice of businesses to invest in, with tax advantages to match the level of risk they are prepared to take.