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Long-term potential of small businesses vital for our future.

Byline: NIGEL MILLS

FINDING an appropriate source of funding is absolutely essential to the growth of any business.

New developments in this area make it one of the most talked about parts of business scale-up, but its complexity can make it seem like a minefield to growth-hungry entrepreneurs.

To put the existing contribution of businesses likely to grow in context, more than 33% of the UK's GDP, more than PS600bn, is produced by small and medium-sized enterprises (SMEs), those with fewer than 50 and 250 employees respectively.

These companies employ at least two-thirds of the country's active workforce, more than 20 million people in total.

Perhaps the most impressive point about SMEs is that all net jobs growth is created by them scaling up, and if just 1% of them were to do so, it would unlock an estimated PS100bn of new economic growth.

Among the primary reasons businesses do not scale up is access to finance, and as the statistics show this is not just important to their owners and investors, but to the nation's economic growth.

Historically, there were a few well-defined sources of finance for business.

First and foremost were the banks, which still make up a huge proportion of investment capital for small businesses, but which have understandably been more cautious about high-risk ventures since the global financial crisis.

A host of new and exciting crowd funding platforms have provided finance for new and growing enterprises, and money is available from venture capitalists and angel investors.

Two very similar, but less well-known routes for investment are the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), both of which are tax-efficient ways of encouraging investors to put their money into small, comparatively higher-risk businesses.

Money generated through these schemes, which invested directly, through EIS and SEIS investment funds, or through crowd-funding platforms, has been essential to the growth of ambitious SMEs that do not meet the strict risk profile of banks.

They allow investors to receive 30% and 50% tax relief on investments of up to PS1m and PS100,000 respectively.

There is now significant pressure on the government to end its perceived policy of austerity and increase public spending, which combined with its weakened political position following June's election, means it will be looking for easy ways to boost the public purse.

Rule changes have already placed heavy restrictions on the amount of companies can raise through these schemes, the age of the companies eligible and the eligibility of current shareholders for rounds of EIS and SEIS fundraising.

The contribution SMEs scaling up can make to the UK's economic growth and stability, while impressive in its own right, is especially important as the government negotiates the county's exit from the European Union, and seeks new agreements, with both our European neighbours and new trade partners around the globe.

To get the most from SMEs, by letting them become scale-ups, the Treasury must resist the temptation of short-term gain, and stand firm in support of the long-term economic and job growth the SEIS and EIS schemes unlock.

Nigel Mills is chairman of the Entrepreneurs' Forum

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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Jul 19, 2017
Words:520
Previous Article:Looking good for business hub; planning.
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