Rules eased to help SMEs access equity financing

The Government has brought forward changes in the law to help smaller firms gain access to equity finance.

The changes mean that fewer small firms will be caught up in the prospectus regime.

SMEs can now raise equity finance of up to 5 million euros rather than the previous limit of 2.5 million euros before a prospectus needs to be drawn up.

They can also target a larger number of potential investors in their search for funding, up from 100 individuals to 150.

The changes are a result of the Government’s decision to introduce amendments to the EU Prospectus Directive a year earlier than originally planned.

The new rules apply from 1 August 2011, and the hope is that the move will help smaller firms secure finance from sources other than the banks.

The EU Prospectus Directive 2003 provides a framework for the preparation of prospectuses, which must be published when securities are offered to the public or are admitted to trading on a regulated market.

In 2010, the European Commission reviewed the Directive and highlighted a number of areas where the rules could be simplified through taking more small issues outside of the prospectus regime.

The intention was to implement the changes by July 2012. However, the UK Government has decided to introduce the deregulatory measures early in order to help UK small businesses access equity finance more easily and cost-effectively.

The 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, added: “We welcome the fact that the Government is leading the way in Europe by making it easier for small businesses to access 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.

“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. What’s important is that small businesses are aware of the alternative routes to finance.”