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It’s been a pretty active year across the board on the UK start-up and small business market but those working over at the Seed Enterprise Investment Scheme (SEIS) have been particularly busy. With SME confidence running high and the growing tendency towards alternative methods of finance still dominating, a record number of applications for funding have been flooding in. 

The Seed Enterprise Investment Scheme

Back in 1994 the Enterprise Investment Scheme (EIS) was launched to help high-risk trading companies raise finance but the 2012 Seed Enterprise Investment Scheme is not to be confused with this. SEIS was launched over three years ago in a bid to encourage start-ups and early stage ventures to generate a sufficient amount of funding to get off the ground and then continue to grow and it seems it has been doing a sterling job since.

The SEIS system works by incentivising investors to invest in start-up projects in exchange for 50% tax reliefs, which is far more generous than those offered by the EIS. Early stage businesses must be less than 2 years old, have fewer than 25 employees and own less than £200,000 worth of assets in order to apply for up to £100,000 worth of annual investment.

Gary Robins, director of Radius Equity, which is an investor in both of the aforementioned schemes, said: “SEIS has been one of the most important innovations in business finance since the financial crisis – as shown by its continuing popularity.

“Funding is vital to early stage businesses – SME owners need to focus on their operations rather than worrying about securing an initial investment and sufficient working capital to grow.

“That hi-tech start-ups in particular are benefiting from SEIS shows how new businesses are a key contributor to the dynamism of the UK economy. For the UK to continue to lead the world sectors such as FinTech there needs to be the right financial and tax environment for them to get off the ground.”

The alternative finance generation

According to statistics obtained by Radius Equity, 2,905 start-ups applied for SEIS funding in the year ending 31st March 2015. This is an unprecedented, record number of applications and while it is only a modest increase on the 2,845 of last year, it is a substantial hike from the 1,729 in the previous year.

A substantial 94% of applications were approved this year, with the scheme proving particularly popular in the tech, business services and restaurant sectors. This inflation of interest in the SEIS is thought to be part of the growing tendency towards alternative forms of lending as UK banks continue to hold finance back from the country’s SMEs. Experts are also pointing towards a widespread lack of trust in traditional funding providers as being another main contributor towards the alternative finance generation.

Tanya Lawler, Vice President of eBay UK commented on the lack of bank-based funding after the company ran a survey which found that two thirds of businesses believe banks aren’t lending as much as they should or could be.

She said: “Small business are increasingly confident about their prospects, with two thirds of those hat we’ve spoken to predicting an increase in sales over the next 12 months.

“However, this confidence in the economy is not translating into confidence in the banks, as reflected by the high proportion of SMEs no longer reliant on banks for funding.”

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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