19 May The Enterprise Investment Scheme (EIS) continues to fuel the small business sector
The number of small businesses planning to raise money under the Enterprise Investment Scheme (EIS) rose from 2,965 in 2019/20 to 3,245 in 2020/21 – representing a near 10% increase according to a report from Growthdeck. As part of a long-term government initiative, EIS investments encourage investors to buy shares in new or young businesses by offering them tax breaks.
With significant obstacles affecting the business world, SMEs are looking to utilise the EIS scheme to continue to progress. Since its inception in 1994, the Enterprise Investment Scheme has raised over £24 billion in funds for almost 33,000 companies. This trend continued into 2021 with a total of £1.65 billion in investment being raised by small businesses. With over 6 million SMEs in the UK, making up 99.9% of private sector businesses, EIS is an essential tool to accelerate the country’s SME landscape. Providing such pivotal support to the backbone of the economy, if the EIS scheme were given greater muscle to assist startups and scale-ups to traverse the challenges posed by the current economic arena, it could provide a boost for the UK economy as a whole.
In a bid to do this, the government launched the knowledge-intensive EIS fund which came into effect in 2020. This initiative allows investors to invest £2 million a year as opposed to £1 million for the standard investment – providing the capital is put into a company focussing on research, development or innovation. It is another example of how important EIS is, especially when it comes to backing small businesses that will tackle many of the world’s challenges.
The EIS looks set to be an important trend throughout 2022, giving SMEs much-needed investment and a platform to grow, whilst providing investors with tax relief to incentivise this investment. Small businesses and SMEs throughout the UK have benefitted enormously from the EIS in the last 25 years, fuelling growth and job creation at an impressive scale.
The small business sector continues to be vital for the UK business landscape, making up three-fifths of employment and nearly half of turnover in the UK private sector. In the last quarter of 2021, 56.2% of SMEs reported a rise in earnings versus the same period of 2020. It seems the increase in businesses taking advantage of the EIS will be an important factor in stimulating the UK economy amidst rising inflation rates and a cost-of-living crisis.
Luke Davis, CEO of IW Capital comments:
“The Enterprise Investment Scheme could make a fantastic option for expansion for small businesses. The EIS provides SMEs with a platform to successfully expedite their growth trajectory, and often empowers business owners to innovate – expanding its scope could provide a big jump in investment for one of the most innovative sections of the UK economy.
“Small businesses and SMEs throughout the UK have benefitted enormously from the EIS in the last 25 years, fuelling growth and job creation at an impressive scale. SMEs are becoming so inventive and versatile and are making sure they are at the forefront of the UK business scene. They are an indispensable part of the UK economy and it’s great to see them receiving the support needed to take their operations to the next level.”