If you’re bursting with ideas for your business but have no idea how you’re going to get the cash to fund them, you have some excellent options available.
Current Capital, a specialist in capital investment, has highlighted two simple and effective funding choices to help you finance your business plan, promote your brand and maximise your profit.
How did businesses used to get investment?
At one time, businesses relied on accountants, financial advisors and even word-of-mouth to attract investments, which meant a lot of missed opportunities and an overall slow process.
But, the rigmarole really started once your company finally managed to interest an investor. First of all, investors had to self-certify to become a valid investor, before then receiving the necessary application form regarding it. If you were still interested in the investment after this point, the next step was to sign an Investment Memorandum, and then negotiate the terms of the investment. But the process wasn’t done yet, as significant ‘know your client’ procedures needed finishing before funds were moved to a lawyer’s account. Slow and painstaking, this way of working also required investors to cover any associated costs, which wasn’t great for attracting a wealth of investors.
Today, initiatives like crowdfunding and the EIS have transformed the process, creating a faster and more efficient investment procedure for everyone involved
The essentials of the Enterprise Investment Scheme
Today, we have a far easier and more hassle-free way of earning that key investment. The Enterprise Investment Scheme (also known as EIS), is a government-endorsed way for companies to attract funding from investors. Started up as a helping hand for smaller, higher-risk companies, the aim is to deliver tax reliefs to investors who buy new shares in these companies, which will hopefully encourage investments that might otherwise have gone to ‘safer’ businesses.
Enterprise Investment Scheme Pros
Here are the key EIS advantages:
- Investments offering 30% income tax relief. This can be anything up to a maximum of £1 million in the 2017/18 tax year and/or £1 million (this can be carried back to the 2016/17 tax year).
- 100% inheritance tax relief (after two years) if the investment is held at the time of death.
- Suspension of Capital Gains Tax for the life of the investment equal to the investment amount.
The EIS in action
Let’s look at a basic EIS example: a UK taxpayer gives £100,000 to a qualifying company as an investment. The investor then receives a £30,000 tax rebate, as long as their income tax liability has exceeded £30,000 in the relevant tax year.
Want more details? Check out gov.uk for information about tax relief.
The essentials of crowdfunding
If you’re looking for something more interactive, crowdfunding is ideal. Crowdfunding seems to do it all: attract cash, increase brand awareness and boost support for a business. Also, this fundraising initiative is especially helpful for small business and riskier projects that have been rejected by banks and other traditional investors. The ability to appeal to investors directly (including the public) has reduced a lot of admin work and lowered the time it takes to secure investments. Now, businesses in need of funding can raise money for an idea in return for a share in the business.
Crowdfunding pros
Crowdfunding is fast growing in popularity, and here are a few reasons why:
- Efficiency: it’s usually a fast way to get cash.
- Development of marketing skills: coming up with and starting a project using the crowdfunding method will sharpen your skills to market business ideas and so, improve the success rate of your later marketing campaigns.
- Alternative route: it’s handy for businesses that have been turned down for funding from other investors.
- Extra funding: this includes grants for a charity or community group, and loans or a pre-cursor to an equity crowdfunding campaign for businesses.
- Support: crowdfunding gathers promoters of your idea and company, as well as boosts loyalty, which can prove essential later.
- Backing: if people are giving you money for your idea, they clearly agree with your strategy which is a great sign for its future success.
Whether you go crowdfunding or the EIS route, these processes can make massive positive changes to your company.
