Member Article

Londoners most likely to invest in SMEs as investors turn to EIS

The current climate of record low interest rates is driving interest in SME investment through the government’s Enterprise Investment Scheme (EIS) as savers and investors seek better returns on their cash.

According to the survey carried out by London-based private equity house IW Capital, 30% of respondents were looking to EIS as part of their financial strategy over the next 12 months with 45% of Londoners surveyed saying they intended to use the scheme - the highest percentage out of any area in the UK.

EIS is a government programme of tax reliefs designed to encourage investment in small unquoted businesses and mitigate some of the risk involved for investors in SMEs.

In particular, the scheme provides a number of benefits and protections for investors through alternative finance and investment platforms such as crowdfunding and P2P lending.

The figures themselves attest to the ever-increasing interest in alternative finance among the general public and will be a boon to the UK’s 5.4m SMEs who rely on alternative funding to grow.

Luke Davis, Chief Executive at IW Capital believes that more and more people are turning to alternative finance for their investments and that EIS in particular is a vital part of the UK’s startup and SME ecosystem.

He said: “IW Capital’s research demonstrates that in the current climate Britons are turning to alternative finance, specifically SME investment through EIS, which offers an attractive suite of tax-related benefits for an investor.

“This is great news for the UK’s collection of 5.4 million SMEs; with more than £14 billion invested through EIS since it was launched in 1993, this scheme has become a vital part of the SME finance landscape and our study shows that the future of this initiative is bright.”

However, the study, which surveyed 2,000 UK consumers and investors, found that the uptake of EIS could currently be held back by a yawning gap in the general awareness and education surrounding the scheme amongst the public.

According to those surveyed, 43% of respondents said they did not feel informed enough about EIS to make a decision about whether they would invest using the scheme or not, despite having been around for nearly a quarter of a century.

Davis adds that the government needs to do more to educate and raise awareness of EIS to help further fuel SME investment and ‘unlock the potential’ of the scheme.

He said: “For EIS to unlock the full potential of Britain’s entire pool of private investors, greater awareness and education is required. It is the responsibility of the Government and industry bodies to achieve this, providing investors with the information they require to make use of the scheme.”