Reforms Open Up Equity Finance to Small Businesses
Small Business News – 6th August 2011
Fewer restrictions for small firms seeking equity finance will make it easier and less expensive for business owners to sell a stake in their firm, the Government has said.
Small and medium-sized enterprises (SMEs) will now be able to raise double the amount of equity finance ? now €5 million (£4.4million) up from €2.5 million (£2.2 million) ? before having to produce a costly prospectus, after changes to EU regulations were brought in one year early.
Prospectuses, which set out details of the business and its financial statements to potential investors, are required by law when firms sell shares. Under the new measures, which came into effect on 31 July, businesses will also be able to target a larger pool of investors, up from 100 to 150.
Mark Hoban MP, financial secretary to the Treasury, said the changes would make accessing finance “more efficient” and save UK small businesses around £12 million a year on the cost of producing prospectuses.
“Small businesses have to be able to access the finance they need — that includes making it easier for such businesses to tap into capital markets.”
The move was welcomed by the Federation of Small Businesses (FSB), which said it was important that firms considered alternatives to bank credit when seeking finance.
“More small firms should look at equity finance as an alternative route to accessing credit, and these simple changes will help firms who are looking to grow and invest.”
said FSB chairman John Walker.
“Extending the number of investors and increasing the prospectus value will help more small businesses access equity finance.”
Independent financial adviser Jonathan Davis, of J D Wealth Management, said the reforms were good news for SMEs.
“Producing a glossy prospectus to attract investors typically costs thousands of pounds once you’ve paid advisers and accountants, so raising the threshold at which this becomes necessary can only be a positive step for SMEs looking to expand.”