Equity funding is a specialist source of money and is only appropriate to certain types of SME businesses. Where this type of investment in SME’s is made by “external” investors that is, non-family or friends, it is often deemed to be a high risk by the investors. A business must be incorporated (private limited) and be willing to sell it’s shares (the equity) in the business in exchange for investment.
The Governments Enterprise Incentive Scheme (EIS) and a new scheme just introduced, "Seed EIS" (SEIS), recognises that risk and allows private individuals some tax benefits to encourage investment at the SME level. Investors can obtain relief from CGT and income tax at rates between 30 & 50%. (www.hmrc.gov.uk)
Equity investment in SME’s is usually invested by individuals often accessed through a Business Angel Network or specialist funds where they believe the business is capable of high growth and/or a significant return on their investment in a relatively short space of time, normally through the sales of the company. As a result of which this type funding is not typically appropriate to the majority of SME and “lifestyle” businesses.
It is quite apparent that in today’s climate where access and availability of finance for SME’s is difficult, a package of lending, investment and grants may all be required to fund the business. Some of the grants may be small in size but possibly valuable in the skill and expertise offered.
Seed fnding a term usually used to describe pre-revenue & early stage concerns who are very often engaged in developing technology and require funds to assist with a variety of activities such as building early prototypes as part of testing and getting the product ready for market.
There are few seed funds available currently, although some of our uiversities do have funds set aside to assist research and development of their own projects and stimulate “spin out technology companies”. Seed funds are normally invested in exchange for equity in the business and in 2011 most external seed funding is being delivered through Business Angel networks and individual private investors.
However, the landscape for finance for SME’s is changing daily almost and even web sites do not and cannot keep pace with all the changes – additions, availability, criteria will all need to be regularly checked.
Click here for a list of just a few of the websites that may be useful in seeing what is available, in the local region, the West Midlands and nationally. They cover just some of the government intiatives and organisations that may represent an industry body offering advice about access to finance and grants and in other cases are sources of funding.
Please note that where a private business is mentioned anywhere in the text it is for illustrative purposes only and should be construed as a recommendation to use them.