Despite recent calls from the Bank of England’s new Financial Policy Committee (FPC) for the banks to slash bonuses and not their lending to small businesses, the reality is that bank loans remain difficult to obtain in the current climate. As a result, many businesses are still looking for alternative methods of investment.

For most, obtaining a loan from family or friends is not a desirable or available option, thus most businesses look for internal investment (such as shareholder or director loans, an enterprise investment scheme (EIS) or even a management buyout) or external investment from the banks, other funding agencies or even so called ‘business angels’.

Improving external investment into the UK’s businesses is something that the government is desperate to achieve. Offering tax relief of up to 30% to ‘angels’ (who provide initial investment to start up businesses) should have been enough to entice the entrepreneurs of the UK in recent times but the EIS has failed to trigger the government’s hopes and expectations for investment.

The government is therefore about to introduce a new scheme called ‘BASIS’ (Business Angel Seed Investment Scheme). This new scheme will offer even more tax advantages to willing investors, raising income tax relief from 30% to 50%!

However, there is of course a potential catch or two. Firstly, it is only available to the crème de la crème of investors who are investing in high risk business start ups. Secondly, the legislation involved is more complex then was initially intended which might put off a few potential investors.

With many investors seemingly reluctant to sacrifice their cash at the moment, businesses might be hoping for the banks to listen to the Bank of England’s FPC calls and lend. Incredibly enough though, it seems from a report commissioned recently in the North West, almost a third of businesses are fearful about approaching their bank for fear of being rejected or/and the bank increasing the cost of their current borrowing.

As an advisor to SME businesses in the North West I continue to hear weekly horror stories of clients’ encounters with their own banks, even where businesses are not in trouble and have strong balance sheets and good levels of profitability. With the continuing reluctance of the banks to lend businesses needing external investment to expand will need to continue to try and pursue alternative investment routes.

For legal advice on company formation or securing business investments, please don’t hesitate to contact me.