Lack of finance options is cited as one of the biggest barriers to small business growth – but many are not aware of the Seed Enterprise Investment Scheme (SEIS) and other initiatives available to help them.
The number of new enterprises is booming, according to a study by financial firm Axa Business, and many are looking for funds to expand but are hitting a dead end with banks that are unwilling to take a risk on new ventures.
The firm has released a study showing that 12% of small businesses had found much-needed funding last year, but half of those had scraped cash together by borrowing on overdraft, credit cards or looking to family and friends to dig into their pockets.
Only a fifth of entrepreneurs had managed to collar a bank loan for their business.
Yet many start-up businesses can access up to £100,000 in equity funding through SEIS.
Business finance options
Giving up some equity eases cash flow issues for many start-ups as no interest payments are due on the investment.
For businesses further down the line looking for expansion cash, the government has the Enterprise Investment Scheme (EIS), the Funding for Lending scheme and other government loans.
However, Axa Business revealed only 20% of businesses had any knowledge of both scheme and the benefits they could provide for their companies.
The research also showed that 50% of small businesses are looking to fund buying new equipment or taking on extra staff and 60% need borrowing or investment to accomplish their goals.
But only 5% had raised money through Funding for Lending, 6% were in a SEIS or EIS scheme and 7% had raised a government loan.
Lack of financial knowledge
Axa Business is urging the government and other business development organisations to better publicise funding available for small businesses.
Researchers found only a fifth had any knowledge of the various funding schemes that could help their businesses. Peer-to-peer lending was more popular, with almost a third of entrepreneurs aware of the possibilities, while crowdfunding ranked the same as SEIS and EIS.
“The overall response was small businesses are in a bubble and generally unaware of the wide range of funding initiatives that available to them outside of traditional banking,” said an Axa Business spokesman.
Even entrepreneurs aware of the schemes were often shown to be working on out-of-date information.
A third had no idea of the latest Budget 2014 tax allowances for investors, although 25% admitted to hearing about them but failing to understand how they might affect their businesses.
Knowledge isn’t necessarily the problem. I am aware of the SEIS and EIS and understand their benefits fully. But regardless of the tax incentives and CGT deferrals, small businesses still need to FIND investors with the capital to begin with. As a small business owner that is where I struggle.