With the Budget approaching next month, the Association of Investment Companies (AIC) is urging the Government to maintain its backing for VCTs as part of its programme to deliver support to small and growing companies.
AIC has published research demonstrating the VCT sector’s strong track record in providing development capital. This research illustrates that, even when bank lending was more freely available prior to 2008, VCTs performed an important role in SME (small and medium sized enterprises) lending.
The research analysed GBP1.3 billion of investments made by VCTs over the last 10 years. This showed that 753 companies received, on average, GBP1.8 million each of investment from the VCT sector. This money has been invaluable in tackling the ‘funding gap’, where SMEs traditionally struggle to raise capital they need to sustain and grow their businesses. VCTs operate around the country and rely on an established network to identify and invest in companies seeking finance. They often provide capital in more than one round of financing, with 37% of companies receiving at least one additional investment. This sustained involvement is invaluable in delivering business growth.
Ian Sayers (pictured), Director General of the AIC, says: “In challenging market conditions, where SMEs are finding it difficult to raise money from traditional sources, VCTs are actively investing. They offer an additional source of capital raised from private investors who would not normally invest in small businesses. In contrast, schemes backed by banks and other institutions offer no guarantee that the money invested with Government support would not have been allocated to SMEs anyway.
“As the Budget Statement approaches the Government is rightly focussing on how it can best support economic growth. VCTs should continue to be part of its approach as they are a proven mechanism to provide investment for UK small companies, which is a priority for the UK’s economy. The track record of VCTs demonstrates that they are already driving economic growth in the small business sector.
“The Government’s commitment to VCTs should include asking Europe to lift restrictions recently imposed on the scheme as VCTs could be even more beneficial to the economy if the European restrictions were removed. These restrictions affect newly raised VCT funds and prevent, for example, investment in companies with more than 50 employees. It is curious that such restrictions should be imposed at a time when employment creation is a priority. If these rules had been in place for the last 10 years, 37% of the companies receiving investment from VCTs over the last decade would have been denied funding.”
