The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies. It complements the existing Enterprise Investment Scheme (EIS) which offers tax reliefs to investors in higher-risk small companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate.
If you are looking for Crowdfunding, investors will be looking for your business to have Advance Assurance from HMRC for SEIS or EIS.
In order to get advance assurance your will need..
The key rules for SEIS:
- Maximum of 25 Employees
- Maximum of £200k Gross Assets
- Maximum SEIS £150k
- Any trade being carried on by the company at the date of issue of the relevant shares, must be less than 2 years old at that date
- The company must not be controlled by another company or another company and any person connected with it, and there must be no arrangements in place for it to be controlled by another company
You can get advance assurance for HMRC by clicking here
A government consultation ended last week into whether legislation should force banks to refer rejected loans to alternative sources of finance.
At present the largest four banks account for over 80% of UK SMEs’ main banking relationships. Many SMEs only approach the largest banks when seeking finance. Although a large number of these applications are rejected – in the case of first time SME borrowers the rejection rate is around 50% – a proportion of these are viable and are rejected simply because they don’t meet the risk profiles of the largest banks. There are often challenger banks and alternative finance providers with different business models that may be willing to lend to these SMEs.
Although the largest banks will sometimes refer these SMEs on, in many cases challenger banks and other providers of finance are unable to offer finance as they are not aware of their existence and the SMEs are not aware of the existence of these alternative sources of finance.
SME’s most trusted advisors are Accountants, according to Accountancy Age a fifth of SME’s are more open with their accountant than their bank manager and half believe that their Accountant is the most valuable source of business advice and just under half turn to their Accountant first for advise.
So why aren’t banks working more closely with accountants? I think its because its hard to work with individual accountants and build multiple relationships, its much easier to work with groups of accountants on a national basis such as www.business-accountant.com
Would you ask your accountant if you were looking for finance?
Crowdfunding is a way in which people and businesses (including start-ups) can try to raise money from the public, to support a business, project, campaign or individual.
The term ‘crowdfunding’ applies to several internet-based business models, only some of which we regulate.
The Financial Conduct Authority don’t regulate:
- Donation-based crowdfunding: people give money to enterprises or organisations whose activities they want to support.
- Pre-payment or rewards-based crowdfunding: people give money in return for a reward, service or product (such as concert tickets, an innovative product, or a computer game).
The FCA do regulate:
- Loan-based crowdfunding: also known as ‘peer-to-peer lending’, this is where consumers lend money in return for interest payments and a repayment of capital over time.
- Investment-based crowdfunding: consumers invest directly or indirectly in new or established businesses by buying investments such as shares or debentures.
Further details on their website
The Financial Conduct Authority is proposing that starting from this year inexperienced investors in equity schemes will have to certify that they will not invest more than 10% of their portfolio in unlisted businesses.
Firms that run the website platforms say the rules are too tight and will put off potential investors.
Barry James, founder of The Crowdfunding Centre, says: “Make no mistake, the infamous 10% rule – however it’s dressed up – does just that: it takes the crowd out of equity crowdfunding.”
Despite the crackdown, investors who lend to small companies will not be covered by the Financial Services Compensation Scheme which protects investors if they are mis-sold an investment or if the company they invest in goes into liquidation.
The FCA believe there is high risk that consumers could suffer losses from peer-to-peer lending.
Is the risk too high? would you invest?
I read with interest in the August edition of Accountancy Magazine (article by Guy Rigby) how Crowdfunding is gaining popularity, here are some examples:
- In 1997 British rock group, Marillion, raised £38,000 from its fans to pay for its US tour. They then went on to use the same method to fund several albums
- In 2010 Hotel Chocolat offered 3 year, FSA approved ‘chocolate bonds’ to its 100,000 tasting club members. Customers were invited to invest £2,000 for a gross annual return of 6.72%, or £4,000 for a return of 7.29% which were paid in regular deliveries of chocolate. The Bonds raised an incredible £3.7m for the company.
- In 2011 Caxtonfx (foreign exchange) raised £4m from its bond issue
- In 2012 Mr & Mrs Smith (travel website) are in the process of raising £4m from a 4 year bond with cash interest of 7.5%, or 9.5% if the ‘Smith loyalty money’ option is taken
- In 2012 Pebble Technology, a Palo Alto based smart watch company used Kickstarter.com to raise $10m against forward sales of its Pebble watch
According to the article, quoting Simon Dixon, to be successful in crowdfunding there is a simple formula £££ = R + SC + E
Where the money raised depend on the strength of the rewards your offer (R), how much social capital you have (SC) and the emotion attached to your story (E)
Its early days, but could this be the future for some businesses, using their fans and contacts to access funding. Social Media and the internet are definitely playing a part in moving this forward.