Enterprise Investment Scheme Tax Relief
The Enterprise Investment Scheme (EIS) provides tax reliefs to investors in order to encourage investment in small higher-risk trading companies. The scheme can help projects to achieve a sufficient rate of return to encourage wider investment over and beyond simply willing supporters. The HMRC website provides further information including information about eligibility. Community Power Cornwall has also been designed to take advantage of the EIS scheme.
Loans and Lending
In commercial funding and finance, loans can be preferable to equity investment as it means community groups retain ownership and control of any income generated from the project. Loans can be secured on other assets or can be unsecured loans. These rely on the expected income from the project to pay back capital and interest. Unsecured loans are also referred to as ‘Project Finance’.
Project Finance can be harder to secure as more stringent lending criteria are used to ensure that the income stream is sufficiently reliable to support repayment of the loan for the life of the project. This can mean that less well established technologies may struggle to attract this sort of finance.
The process of assessing the suitability and expected returns of potential investments is referred to as ‘due diligence’. This involves verifying the information that the loan application is based on and will usually include an assessment of both the project and the group seeking the funding.
Different lenders will have different requirements and criteria for lending. Ideally lenders should be able to clearly state their requirements up front so that communities can deliver these as efficiently as possible. Commercial finance for community renewables remains a new market and so the application may involve an iterative process with lenders defining requirements as their understanding of the project develops.
Lenders may have a minimum loan amount to ensure that the investment can both cover due diligence costs and provide a sufficient return. Lenders may also have a maximum percentage of the total investment that they are willing to lend which is referred to as ‘gearing’.
A number of ‘ethical banks’ have previously expressed a commitment to support sustainable and community energy. These include:
The Charities Aid Foundation may also be able to help you find finance for your project.
It is always worth talking to your local high street bank, especially if your community group or members within the group are already customers.
Commercial investors invest in return for owning a share in the company or project. This is also called ‘Equity Investment’. Commercial investment differs from community investment because it is made purely to achieve a financial return rather than due to social or environmental motives. As illustrated by the popular TV programme ‘Dragons Den’, equity investors can be a positive force helping an enterprise to achieve its objectives. For community energy projects this comes at the expense of losing part of the ownership of the project and control of the income generated through the project.
It can be difficult to know where to start when looking for equity investment. Below are useful links to get you started.