The number of small businesses planning to raise money under the Government’s flagship Enterprise Investment Scheme (EIS) rose nearly 10 per cent last year from 2,965 in 2019/20 to 3,245 in 2020/21, according new data shared with City A.M. this morning.
The rise in SMEs looking to raise funds though EIS shows that enthusiasm for equity fundraising among small businesses is growing, private equity firm Growthdeck said.
As the economic disruption of the pandemic fades, more small businesses are looking to the EIS scheme to accelerate their growth.
EIS is the Government’s flagship tax incentive to encourage private individuals to invest in fast-growing UK businesses. The scheme is aimed at high net worth investors, with a limit of £1m investment per year, rising to £2m if backing ‘knowledge-intensive’ companies.
“EIS fundraising bounced back quickly once the initial shock of the pandemic was out of the way,” explained Amy Shrives, Head of Business Development at Growthdeck.
“Small businesses saw the opportunity to benefit from the economic recovery and got back to finding the funds to drive their growth,” she told City A.M.
More applications rejected
Growthdeck adds that 295 applications for EIS approval were rejected last year, an increase of 59% on the year before. It says that there is a risk HMRC is becoming too aggressive in turning down EIS applications.
Shrives said: “It’s important that HMRC doesn’t choke off vital funding for SMEs by restricting EIS fundraising. It should operate with a presumption towards saying yes wherever possible.”
“There are already a lot of restrictions in place on EIS applications that businesses see as quite arbitrary – the seven-year age limit on companies applying for funding, for example. It would be good to see the Government and HMRC both work to open EIS up to more businesses rather than restrict it,” she concluded.