The benefits of the Enterprise Investment Scheme & crowdfunding for your business

Struggling to raise funds for a particular business project? You’re not alone—many businesses feel let down by traditional investment methods that have so far stunted their potential business development plans.

Finding business finance

Thankfully, a new wave of investment opportunities is growing; the government Enterprise Investment Scheme (EIS) and crowdfunding.

Providing an overview of each and their associated benefits is Current Capital, an investment specialist.

How can crowdfunding help?

Traditionally, businesses would become aware of potential investments through accountants, financial advisors or word of mouth. In the period following, an investor would need to qualify by gaining self-certification before they could receive a presentation, brochure and application form.

Those still interested in the investment would then be expected to sign an Investment Memorandum, and then perform their own due diligence and negotiate terms of their investment. Even then the process wasn’t complete, as significant ‘know your client’ procedures would need completing before funds were transferred to a lawyer’s account.

This already lengthy process was made even more time-consuming as investors were required to cover any associated cost and arrange their own due diligence. Fortunately, crowdfunding has made the entire process much more efficient.

Crowdfunding is particularly beneficial for smaller businesses that have previously been turned down by High Street banks. With crowdfunding, companies are able to appeal directly to small investors (including members of the public) by trying to raise money for an idea in return for a share in the business.

So, what are the benefits of doing so? They include:

  1. You receive advocates who will support both a business and their idea, becoming part of the journey and making for appealing ambassadors when the project develops in the future.
  2. Additional funding can be unlocked, such as grants, if a charity or community group or investors, loans or a pre-cursor to an equity crowdfunding campaign if a business.
  3. While creating and launching a project via a crowdfunding platform, those with the idea will need to think about how best to market the idea — developing their marketing skills in the process.
  4. Validation is received by the fact that small investors and members of the public are on board with an idea and are already paying or contributing in order to bring it to market.

How can the Enterprise Investment Scheme help?

With the EIS, the government is making it easier for people to invest in companies.

Calculating business finance costs

Particularly beneficial for smaller and high-risk companies, the scheme allows companies to raise funds by offering impressive tax reliefs to investors. Benefits include:

  • A deferral of EIS Capital Gains Tax for the life of the investment on the amount subscribed.
  • 30 per cent EIS income tax relief on the amount subscribed, which can be up to a maximum investment of £1 million in the 2017/18 tax year and/or £1 million which is carried back to the 2016/17 tax year for a minimum of three years.
  • 100 per cent inheritance tax relief after two years, so long as the investment is held at the time of death.

As an example, a £100,000 investment by a UK taxpayer in a qualifying company would result in a £30,000 tax rebate from HMRC. However, their income tax liability must have exceeded £30,000 in the previous tax year.

If you would like to learn more about EIS, visit the GOV.UK site or the Current Capital website here.

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