North East Connected

The potential benefits of EIS and crowdfunding

Investment specialists Current Capital explains the benefits of the Enterprise Investment Scheme (EIS) and crowdfunding, and how they can help North East businesses achieve their project goals:

EIS: The benefits

The EIS is a government-established scheme that aims to help companies gain more investments. It helps smaller and higher-risk companies raise funding through offering impressive tax relief to investors.

Benefits include:

Based on a £100,000 investment by a UK taxpayer into a company, HMRC will provide a £30,000 tax rebate. However, to qualify, they must have an income tax liability of over £30,000 in the previous tax year.

The GOV.UK site builds on this introduction, providing more information about the scheme.

Crowdfunding

Previously, after finding out about investment opportunities from accountants, financial advisors or by word of mouth, investors would have to secure self-certification 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 incredibly slow process required investors to arrange their own due diligence, as well as paying for any associated costs. Fortunately, crowdfunding has made the entire process much more efficient.

Crowdfunding enables companies to raise funds, awareness and support for a particular cause or project. Small businesses that had previously been turned down by High Street banks are able to appeal directly to small investors (including members of the public) by trying to raise money for an idea in return for a share in the business.

Some of the advantages of crowdfunding are:

  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 in order to bring it to market.

 

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