What Did Budget 2015 Offer to Early Stage and Growth Businesses?

Much of the focus in the recent Budget has been around George Osborne’s one liners at the expense of the leader of the Opposition.

But look beyond the to and fro of the Westminster Bubble and there were some potentially interesting announcements in there for smaller businesses with growth ambitions - although there wasn’t seemingly a huge focus on the entrepreneurial environment..

For example, a perennial issue in the world of the hard-pressed SME has been access to finance. No secret there.

The Chancellor appears to be attempting to address this by increasing the supply of growth loans with an announcement of a pilot scheme to deliver up to £100m of loan based finance to expanding firms. The ‘Help to Grow’ programme will offer this new funding via the British Business Bank to sit alongside existing equity programmes, which incidentally were bolstered by further funding in the Autumn Statement. The figure of £100m is not a huge amount but it is a start in an environment where loan funding, particularly for smaller companies, is hard to come by.

There was also an announcement on amendments to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs).

One of the changes is a requirement that companies must be less than 12 years old when receiving their first EIS or VCT investment, “except where the investment will lead to a substantial change in the company’s activity.”

There is also going to be a cap on total investment received under the tax-advantaged venture capital schemes of £15 million, or £20 million for knowledge-intensive companies.

From a our perspective, however, we would not expect these changes to significantly affect early stage businesses where most of this money gets targeted.

One particular line that caught my eye was this:

The government will also smooth the interactions between the schemes by removing the requirement that 70% of the funds raised under SEIS must have been spent before EIS or VCT funding can be raised.

This potentially confirms that businesses are able to raise both EIS and VCT monies alongside SEIS and brings much-needed clarification to an area where there has been a question mark. Although this may yet be subject to the scrutiny of the EU under the auspices of ‘state-aid’.

In summary, the additional money for the British Business Bank is clearly good for SMEs, but if we assume that normal loan metrics apply (more detail needed to know how this will be operated) it is highly unlikely to be available for early stage businesses. Furthermore this is just a pilot and £100m is a relatively small sum of money, but it’s obviously aimed at addressing the chronic market failure in which banks are not lending to SMEs.

Roger Wood