It’s rare for any business to reach its full potential without needing to seek external investment at some point. But for smaller businesses, attracting capital investment can be a challenge.
While Public limited companies (PLCs) can list their shares on a stock exchange and sell them to the general public, they are the only type of company allowed to raise capital in this way. So, if you’re running an early-stage private limited company and you need to raise funds to help you grow to the next level, how can you do it without going to your bank?
The government operates several venture capital schemes designed to encourage individuals to invest in private companies, including the Seed Enterprise Initiative Scheme (SEIS) and the Enterprise Initiative Scheme (EIS). The schemes are designed to benefit both parties. They provide companies with a way to access the funds they need to grow and offer generous tax breaks to investors prepared to put their money into businesses just starting out – and therefore representing a relatively high risk.
We’ll be considering the rules and benefits of SEIS and EIS for prospective investors in a future blog, but for now, we’ll focus on things from the perspective of a business owner looking to raise funds for growth.
If you’re running a relatively new start-up enterprise, understanding how SEISS and EIS work, whether you qualify and if so, what you need to do to apply could be key to helping you unlock future development.
1. What is the difference between the two schemes?
The two schemes are similar, but SEIS is aimed at very early-stage companies, while EIS is focused on more established start-ups.
2. Is your company eligible?
To qualify for SEIS or EIS, your company must:
- Have a fixed place of business in the UK
- Carry out a qualifying trade. Most trades will be eligible – including research and development leading to a qualifying trade – but there are some exclusions, and if an excluded trade makes up 20% or more of a company’s activity, it will not be eligible for SEIS or EIS
- Not be listed on a recognised stock exchange
- Not be controlled by another company
In addition to the above, your company must also meet the specific qualifying conditions of the scheme you opt for:
- Seed Enterprise Investment Scheme
Your company may qualify for SEIS if it meets the following criteria:
- It’s less than 2 years old
- It has no more than £200k in gross assets
- It has less than 25 employees
- It has not previously carried out a different trade
- Enterprise Investment Scheme
Your company may qualify for EIS if it meets the following criteria:
- It has no more than £15m in gross assets
- It has less than 250 employees
- It’s been no more than 7 years since the company made its first commercial sale
3. How much money can you raise?
There is no minimum to how much you can raise through either SEIS or EIS, but maximum levels do apply depending on which scheme you select.
In the lifetime of your company, you can raise up to £150k through SEIS or up to £12m through EIS. Subject to certain conditions, companies carrying out research and development or innovation may be eligible for higher limits.
4. What can you use the money for?
In order for a business to accept SEIS or EIS investment, the funds raised must be used for a qualifying business activity. Money raised must be used only on things that promote the growth and development of the company – for example, recruitment, training, product development, promotion and marketing.
5. What is the first step in the application process?
Before offering investors the opportunity to put capital into your company through one of these schemes, you’ll need to obtain confirmation from HMRC that your business is eligible.
To do this, you’ll need to apply for Advance Assurance, providing HMRC with supporting documentation, including your business plan, full financial information and details of at least one of the individuals interested in investing in your business.
Are you ready to grow your small or early-stage company? For eligible businesses, the SEIS and EIS venture capital schemes are an effective and efficient way to raise money.
Obtaining funding for next-level growth can be a real challenge for many start-ups and emerging companies. As accountants working exclusively with micro and small businesses, we’ve helped a number of our clients take advantage of these government-operated investment schemes to gain critical funding.
If you’re ready to grow your business, why not give us a call to find out more about SEIS and EIS? We can advise which scheme is right for you, answer any further questions you may have, and if you decide to go ahead, we can help you navigate the application process. Get in touch with us now by calling 01235 868888 or contact us by email at [email protected]