Crowdfunding - another option for business finance
The struggle faced by smaller businesses in accessing finance in recent years has been well documented. This is despite the reliance of the UK economy on small and medium sized companies as an engine room for growth.
Traditionally funding options for new and growing businesses have been largely restricted to personal funds, banks, or in some cases business angels. We are however now seeing a rapid emergence of a new option, in the form of ‘Crowdfunding’. This a method of raising money by an appeal to a large collection of people and collecting from them small contributions, which combined meet the funding requirement of the business. The raising of funds is normally carried out through online platforms, which bring together the contributions of the crowd.
The most common models for businesses are debt and equity. Debt is where the crowd advance a loan to the business via the platform, equity where the crowd invest in shareholdings to provide funding.
There are a good number of online platforms available, including ‘Funding Circle’ which is a debt type platform and is now seen as an alternative lender for mainstream banks. For equity funding, options include ‘Crowdcube’ and ‘Squareknot’.
For businesses requiring equity investment, the use of a crowdfunding platform can in certain cases be combined with an offer to investors of Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) tax reliefs. These schemes can offer significant immediate and longer term tax breaks to investors.
If you are a business owner interested in crowdfunding or the tax incentives available to investors, please contact Mark Thompson for advice on 01573 224391, email firstname.lastname@example.org.
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