The Seed Enterprise Investment Scheme (SEIS) is still a vital fund raising tool as business experts and the government identify finding growth finance as an ongoing major problem for small companies.
Despite pumping funds into the British Business Bank, a state-backed lender that has raised more than £660 million and underwriting commercial bank loans to businesses, bosses and entrepreneurs complain they are still short of funds.
SEIS is another fund-raising initiative championed by Chancellor George Osborne that has raised millions in investment for around 2,000 since starting on April 6, 2012.
Government policy is clearly aimed at helping new start businesses unable to raise cash from banks as debt finance as they have no assets as security.
SEIS allows investors to take an equity stake in a firm which then has no interest to pay on the money out of a restricted cash flow during research and development or when the business goes to market.
SEIS tax breaks
In return, investors pick up tax breaks on income tax and capital gains tax when entering and exiting the SEIS. These tax breaks deflect the risk of involvement in a start-up.
Dr Adam Marshall, executive director of policy at the British Chambers of Commerce is one expert arguing access to finance is a big problem for Britain’s businesses.
“Access to finance is still holding back many new and growing companies across the UK,” he said.
“The banking system needs to do more to help businesses grow and adapt to the needs of the economy. Banks have real problems dealing with businesses. The cost of finance, difficulties of meeting their lending criteria, trust and tighter regulation are all playing a part in these problems.”
Raising the SEIS limit
Besides SEIS, businesses can also look towards the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) as alternative routes to attract equity investors. Both these schemes offer bigger funding opportunities but less generous tax breaks for investors.
Many business experts are arguing that the maximum SEIS investment of £100,000 should rise to £150,000 or even £250,000 to allow more money into the pipeline for cash-hungry new firms jostling for investment.
So far, Osborne and the Treasury have not commented on the calls, but raising the investment limits could open the flood gates to much more money for start-ups.
One of the obstructions is the cost of due diligence on a £100,000 SEIS investment eats too much into the likely profits and raising the limit would ease this worry for investors.
