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SMEs access to equity finance eased

Small businesses are set to be able to access equity finance more cheaply and effectively with early changes to European regulatory measures.

Two amendments to the EU Prospectus Directive have been brought into effect a year early by the UK, allowing businesses to take advantage of the measures from 1 August 2011.

SMEs will now be able to raise equity finance up to €5 million (doubled from €2.5 million) before having to produce a prospectus. The government says that removing the obligation on a significant number of small companies to issue a prospectus will save UK SMEs around £12 million per year.

The BGF will invest sums of between £2 million and £10 million approximately per business in return for a minimum ten per cent equity stake and a seat on the board for a BGF director. The fund will provide long-term equity investment for those growing companies which today do not have access to this source of capital.

Dr. Cable added: "Good investing requires local connections to find and assess opportunities, so for the fund to have a presence outside London – in both Birmingham and Edinburgh – is particularly heartening. British businesses must have access to the growth capital they need, wherever they are based

Small companies will also be able to target a larger pool of investors (up to 150 investors, from 100).

Financial Secretary to the Treasury Mark Hoban said: “I’m delighted to announce that the UK is taking the lead in Europe by introducing these deregulatory measures early.

"Reducing the regulatory burdens faced by business is vital in making the UK the best place in Europe to start, finance and grow a company. In order to play their part in the wider economic recovery, 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."

John Walker, national chairman of the Federation of Small Businesses, said: “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.

"Extending the number of investors and increasing the prospectus value will help more small businesses access equity finance and show there are more options than just going to the bank for credit."

LINK: Treasury annoucement