Jump in small businesses planning to raise money through EIS
The number of small businesses planning to raise money under the government’s flagship Enterprise Investment Scheme (EIS) rose nearly 10% last year from 2,965 in 2019/20 to 3,245 in 2020/21*, says private equity firm Growthdeck.
Growthdeck says that the rise in SMEs looking to raise funds though EIS shows that enthusiasm for equity fundraising among small businesses is growing. 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).
Amy Shrives, head of business development at Growthdeck, says: “EIS fundraising bounced back quickly once the initial shock of the pandemic was out of the way. Small businesses saw the opportunity to benefit from the economic recovery and got back to finding the funds to drive their growth.”
More EIS applications getting rejected – risk HMRC is turning too many down
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.
Amy Shrives says: “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.”
* Number of applications for ‘Advance Assurance’ under the Enterprise Investment Scheme. Year end 31 March 2021. Source: HMRC