Almost forty per cent of the investment opportunities on crowdfunding platforms are channelling much-needed funding into micro enterprises, according to new research by crowdfunding platform Growthdeck.
The study revealed that nearly four-in-ten crowdfunding pitches are promoted as eligible for tax breaks through the Seed Enterprise Investment Scheme (SEIS) – a government initiative to encourage investment in small firms.
For finance raised to qualify for the scheme, the company in question must have assets of under £200,000. Those who invest in eligible small firms benefit from 50 per cent income tax relief – as well as a capital gains tax exemption if the shares are held for at least three years before being sold.
Gary Robins, co-founder and CEO of Growthdeck, said: “Crowdfunding platforms have become a vital conduit for small business owners to access the funding they need to exploit their growth potential, providing a much-needed boost to the sector.
“These startups and micro businesses are exactly the type of companies that have previously found it the most difficult to access bank lending – the crowdfunding industry is making great strides to fill this gap.”
Equity-based crowdfunding now provides 16 per cent of seed finance in the UK – with peer-to-peer lending and crowdfunding set to be worth £5bn to the UK economy in 2016. That’s according to additional research published by Nesta and the Cambridge Centre for Alternative Finance in February 2016.
Yet not all experts in business lending have welcomed the growth. Former Financial Services Authority (FSA) chairman Adair Turner told BBC Radio Four’s Today programme in February 2016 that he was concerned about the level of risk inherent in lending to young companies.
“You cannot lend money to small and medium enterprises in particular without somebody going and doing good credit underwriting,” he cautioned. “This idea that you can just automate that on to a platform, I think it has a role to play but I think it will end up producing big losses.”
Small Business Decision Maker and Start Up Loans CEO Tim Saywer told Business Advice in a recent interview that he thinks alternative finance still needs to prove itself. “If bad debt on the platform stays low in the next two years then I think we’ll be able to say, yes, they do have an advantage over banks – but it’s still early days,” he argued.
Confused about crowdfunding? Our expert guide addresses some common misconceptions.
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