Business funding – how to encourage armchair investors

Finding business funding can be hard work, especially in the current economic climate. But research suggests a lack of knowledge is stopping many entrepreneurs from taking advantage of a scheme aimed at attracting investors.

Many people running their own company are not aware of the Enterprise Investment Scheme (EIS)and Seed Enterprise Investment Scheme (SEIS), which are aimed at making it easier for small and start-up businesses to get the funding they need for anything from setting up in the right premises or employing staff to buying stock or expanding.

Research by E2Exchange shows more than one in four entrepreneurs have never heard of EIS, while more than one in three said they did not know about the tax relief that the initiative offered to investors. The poll of 1,000 businesspeople found 60% had not used the EIS and a similar number did not know the difference between it and SEIS. More than 40% were unaware of SEIS while almost 90% had not used the scheme.

So what are these schemes and how can they help your business?

What is EIS?

If you run an unquoted company, which is not listed on any exchanges and you have fewer than 250 employees then people who put money into your business may be eligible to tax relief on their investment.

Individuals who invest in small businesses for at least three years can benefit from 30% tax relief on the cost of the shares bought as well as exemption from capital gains tax and inheritance tax.

What is SEIS?

SEIS is a smaller version of EIS to help start-up businesses get funding and it offers investors an even bigger tax break – people who commit to an SEIS for five years get 50% income tax relief on the cost of the shares bought. Individuals can invest up to £100,000 while companies can invest up to £150,000. The scheme was launched in April 2012 in recognition of the difficulties start-up firms often experience in finding business funding.