2 Non-Traditional Funding Options You Should Not Ignore


If you are considering a way to raise finance for a new business project, you shouldn’t ignore the benefits that both the Enterprise Investment Scheme and crowdfunding can have in reaching your goals. Current Capital, which specialises in guiding people through their investment journeys, explains why:

  1. Why should you consider the Enterprise Investment Scheme?

The Enterprise Investment Scheme (EIS for short) is the government’s technique for encouraging companies to grow and attract investment from qualifying investors.

A way to assist smaller, higher-risk trading companies to raise finance, the EIS provides investors with many tax reliefs when they opt to buy new shares in the companies involved. Benefits of the scheme 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 percent inheritance tax relief after two years, so long as the investment is held at the time of death.

Taking the figures above into account, an example of the EIS in action would be if a UK taxpayer invested £100,000 into a qualifying company, they will receive a tax rebate to the value of £30,000 from the HRMC so long as their income tax liability for the previous tax year had exceeded £30,000.

This summarises the EIS. However, much more information about the initiative can be found on the GOV.UK site or here, including the complete breakdown and rules on the various tax reliefs available, how tax relief can be claimed, times when tax relief can be reduced or withdrawn and how a company can qualify for the EIS.

  1. Why should you consider crowdfunding?

Imagine the scenario, though you may well have witnessed it if your experience in the business world has exceeded a few years. In the past, accountants, financial advisors or simply through word of mouth would have been the ways that investors heard of opportunities within business.

From there, necessary self certification would need to be completed to become a qualifying investor, before they were provided with a presentation, brochure and application form about the opportunity. 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 can be a drawn-out process, as well as one which would require investors to arrange for their own due diligence and cover any associated costs. Fortunately, crowdfunding has made the entire process much more efficient.

A great way to raise awareness, support and money towards a project, crowdfunding has proven particularly eye-catching to small business which had previously been turned down by High Street banks. In effect, it enables companies to appeal directly to small investors (including members of the public).

Crowdfunding has many benefits, including:

  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 to bring it to market.

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