Equity finance ‘key to SMEs’ future’

Small firms need to make far greater use of equity financing to offset lower levels of bank lending and grow their business.

That’s according to the Small Firms Association (SFA) chairman, AJ Noonan, who added that enhancing equity finance and investment in small firms is key to Ireland’s future success.

Mr Noonan said that a wider range of funding options was required for businesses to prosper, and highlighted a lack of awareness as a potential reason as to why equity financing is under-utilised in the Irish economy.

“For Irish SMEs, supply of finance is second only to finding more customers as the most pressing issue being faced.

“Therefore it is essential that the Government works to deliver a greater diversity of funding and investment options for SMEs,” said Mr Noonan.

“Currently in Ireland, the demand for equity finance is low as there is no culture or tradition of using equity finance.

“Also, small firms fear that they will lose control over their business and among small firms there may be a lack of awareness and understanding about this type of financing,” he added.

Mr Noonan called on the system of Local Enterprise Offices in the country to educate businesses in this regard.

The association is also looking for changes to be made to the Employment and Investment Incentive Scheme (EIIS) which would see the investment term extended to five years from three, and also involve a re-branding of the scheme as the Business Expansion Scheme (BES) — the name of the scheme EIIS replaced in November 2011.

While his organisation previously backed the capital gains tax (CGT) Entrepreneur’s Relief scheme announced in Budget 2014, Mr Noonan said that “in practice, the scheme will not work in its current format” and called for a 20% rate of CGT to be applied across the board for businesses to support further investment in the economy, claiming such a move would benefit the exchequer by boosting overall tax take.