How do you raise finance for a business project? If you’ve been reliant on traditional methods, it’s time to wake up to the benefits that crowdfunding and the Enterprise Investment Scheme (EIS) brings.

Providing a run-down of each of these initiatives is Current Capital, an investment specialist:

The Enterprise Investment Scheme: what you need to know

The Enterprise Investment Scheme (EIS) has been established to support companies to attract and grow investments.

The scheme works by offering tax relief to investors, so is particularly beneficial to smaller companies with a higher trading risk. Benefits 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 per cent inheritance tax relief after two years, so long as the investment is held at the time of death.

Under the EIS scheme, a UK taxpayer with a £100,000 investment will receive a HMRC tax rebate of £30,000. To qualify, they must have exceeded £30,000 in income tax liability in the previous tax year.

For more information on this, visit the GOV.UK site or the Current Capital website here.

Crowdfunding: what you need to know

Crowdfunding is helping businesses move away from time-consuming, traditional investment methods. In the past, accountants, financial advisors or simply through word of mouth would have been the ways that investors heard of opportunities within business.

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In the period following, investors were required to ‘qualify’, attaining the necessary self-certification, before they could receive the 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.

Investors were required to arrange their own due diligence and cover any additional costs themselves. Fortunately, crowdfunding has made the entire process much more efficient.

An effective way to raise money, as well as generate awareness and support for a particular project, crowdfunding is particularly appealing to small businesses that may have been turned down by high street banks. It enables companies 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 key benefits of crowdfunding are as follows:

  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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