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Finance| The paradox of funding your business T

he danger of writing an article that mentions events of the day of writing is that by the time of publication one can be made to look a fool…but that’s never stopped me in the

past so here goes! The sun is shining, the markets are rising and Boots the chemist has agreed to sell 45% of its business for a staggering $6.7 billion! And the government has recently announced that it will provide our banks with £100bn of cheap long term funding to encourage them to lend to businesses and consumers. That all sounds rather good, however, from where I sit one of the key aims of any government programme must be to stimulate growth and small businesses have typically been a major part of that.

As Jean-Philippe Courtois, president of Microsoft International, said at a recent conference, it was estimated that 85 per cent of net new jobs in the EU between 2002 and 2010 were created by SMEs.

So if this is the case then is bank lending the most effective method of financing SMEs? The CEO of the London Stock Exchange, Xavier Rolet, thinks not adding in a recent interview “…so what is the primary tool in financing innovation. Of course it is not debt, it has always been equity, which as an asset class was created in the UK. So if you’re financing a start up …..equity is the right tool.”

At I-Corporate Services we agree with Mr Rolet and have been working with a partner organisation, EGR Capital, to develop a service that matches investors with young companies that need finance to expand, using the initiative introduced in George Osborne’s last budget called Seed Enterprise Investment Scheme or SEIS for short.

The SEIS is designed to help small early stage companies to raise equity finance by offering a range of tax reliefs to individual investors. 50% of the investment amount qualifies for income tax relief during 2012/13 subject to compliance with SEIS Regulations.

Most importantly it offers an opportunity to invest in local early stage businesses thereby supporting economic growth in the region. With all the noise in the press at the moment regarding aggressive tax planning by celebrities this is a bona fide way that investors can reduce their income tax and potentially capital gains tax liability.

To qualify companies must be unquoted and either be carrying on a new trade that started within the last two years or preparing to undertake a new trade. They must have less than 25 employees and gross assets of less than £200,000 and there is an absolute limit of £150,000 on the number of shares that can be issued under SEIS. All cash must be used within three years and can be used on R&D spending or on preparing to trade.

Now here’s the paradox, the government only expect around £30 million to be raised via SEIS and yet is providing £100 billion for an asset class that most experts believe is not the right tool for financing SME’s…..debt. Please can we have some joined up thinking?

For more information on whether your business might qualify for SEIS funding call Geoff Newman, Director I-Corporate Services Ltd on 015822 715777.

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