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EISs celebrate lack of bank funding
Enterprise Investment Schemes are experiencing the best “sweet spot” they have had in decades because bank funding is so hard to come by, Susan McDonald of Calculus Capital has said.
Ms McDonald, chairman of Calculus, said the quality of companies seeking EIS funding is the highest it has been for years, largely because smaller businesses are finding it difficult to secure funding from banks.
She said: “There are many good companies that are already profitable or close to being profitable that are looking for capital to fund their expansion.
“However, banks do not want to lend to them. As an EIS investor, we can step in and fill this gap on attractive terms for our investors, while also helping successful UK companies take the next step up in their development.”
Calculus launched the UK’s first Enterprise Investment Scheme fund in 1999, and Ms McDonald said there are now plans to strengthen the investment team because of the recent upturn in the EIS market.
The sector has recently benefited from government reforms allowing investment in larger, more mature companies, and EISs offer lucrative tax breaks, such as 30 per cent initial income tax relief.
However, Matthew Woodbridge, head of investment products for London-based Chelsea Financial Services, warned investors to tread carefully with EISs.
He said some schemes invest in highly specific areas, such as wine, so even well-established companies might not necessarily be lower risk.
He said: “There are a range of EISs and most are associated with pre-profit early stage companies. Calculus is more generalist and more akin to a venture capital trust style of investment and tends to invest in more stable near profitable companies. The proof is 10 years down the line when they exit the investments.”
