By Daniel Hunter

The number of small and medium-sized enterprises (SMEs) seeking to raise funds through the Enterprise Investment Scheme (EIS) reached a record high in 2014/15, according to private equity firm Radius Equity.

HM Revenue & Customs (HMRC) figures show that 2,925 SMEs applied to EIS, up 7% in a year, up from 2,730 in 2013/14, and has doubled over five years from 1,457 in 2010/11.

The EIS offers investors generous tax breaks to encourage private investment in unquoted companies. The tax breaks that the Government provides for EIS investments means that investors have been willing to take the extra risks involved in investing in smaller companies.

Radius Equity said the scheme’s popularity with SMEs and investors is steadily increasing, particularly due to the continued difficulty of accessing bank funding, as well as the shortage of other tax efficient investments for private clients.

Gary Robins, Director at Radius Equity, said: “The EIS continues to offer a vital opportunity to SMEs, many of whom are still suffering from the drought of bank lending, to get the funds needed to increase investment and grow.

“With SMEs now seeking clearance in their thousands, there is more choice for investors than ever before. SMEs from a wide range of sectors view the EIS as the most effective means of fulfilling their economic potential.”

SMEs raised £1.39 billion through the EIS in 2013-14, an increase of 36% on the £1.02 billion raised in 2012-13.

Mr Robins added: “Ambitious businesses welcomed the expansion as it presented an opportunity to develop and drive their business forward into the next stage of their growth.”

“As more businesses are becoming aware of the EIS and its capacity to support growth and job creation, the number of SMEs seeking to become involved continues to rise.”

“The EIS is one of the few schemes designed to increase funding to SMEs that has been a wholesale success. It is now an important component in the funding of growth companies.”