Small firms call on Cable to relax rules on private investors

SMALL firms are urging Vince Cable to relax rules on entrepreneurs investing in their businesses as they claim access to "reasonable and affordable" bank lending remains difficult.

The Institute of Chartered Accountants of Scotland (ICAS) has written to the new Business Secretary urging him to extend the amount individuals can invest in start-ups through certain schemes and to sweeten tax breaks as the private sector comes under increasing pressure to fill the funding gaps left by banks.

However, ICAS warns that private investors should not become a substitute for bank lending. The accountancy body says the government should lean harder on financial institutions to offer "reasonable" deals to the SME sector.

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In his first speech to industry leaders last week, Cable himself acknowledged that, while banks are lending, the fees and rates available can be disproportionately high.

Cable said at the time: "The banks claim that there is no demand. That is not right. If the bar is set too high, of course no-one is willing to jump."

ICAS proposes that more private investors or "business angels" could be encouraged to plough their money into young companies through the relaxation of rules surrounding initiatives such as Enterprise Investment Schemes and Venture Capital Trusts.

David Wood, head of technical policy at ICAS, says in the letter to Cable: "The majority of SMEs still find 'traditional' access to bank credit difficult.

"Cash flow is the life blood of business, more so in the SME sector where any problems with cash flow bite quickly. Key to this is the banking community who need to realise the significant and important part SMEs play in encouraging economic growth and job creation."

Wood added: "To stimulate growth, SMEs need access to funding. If the banking sector does not address this need adequately, additional funding would need to come from private investors. Increasing the incentives for this can be achieved through relaxing the conditions for individuals investing in SMEs through Venture Capital Trusts or Enterprise Investment Schemes."