INVESTORS are set to plough £50 million into this year's round of Business Expansion Schemes (BES), according to analysts who say the funds are attracting more interest than ever before.
Some schemes have closed already and several others are almost fully subscribed. BES project managers say raising money is not the problem - rather the difficulty arises with the shortage of suitable ventures in which to invest.
Investors are also flocking towards BES funds because there is a perceived shortage of Section 35 type film ventures in which to invest, according to the managers.
ICC Bank, for example, hash closed its BES fund after just five days. The fund's original target was £5 million, but it was heavily oversubscribed and closed at £8 million.
This year's Budget stipulated that companies in which more than £250,000 is being invested must be certified by Forbairt and submit a detailed business plan.
Although welcomed by project managers, they say it has reduced the number of private placings coming to the market - as smaller companies have not had time to comply with the new process. Hence, not much more than £50 million will be raised this year, despite the strong appetite from investors.
In contrast, the funds do not have to get certification before they raise the monies.
Project managers say low interest rates and the buoyant economy are the key factors influencing investors. People have more disposable income but high tax rates are driving people to seek tax shelters, to which there are very few left.
Under the BES scheme, individuals can invest up to £25,000 and qualify for full income tax relief on income earned in the 48 per cent tax bracket, so up to £12,000 could be paid back.
Shares must be held in the company for a five year period.
There are a variety of BES ventures on offer this year from hostels to hotels to manufacturing and healthcare projects. In common with previous years, BES promoters say the ventures are "safe bets", even though the scheme's intention is that there should be an element of risk involved.
"Investors have no appetite for risky investments," says Mr Paul Lynch of Riada Stockbrokers. "They are more interested in established companies in sectors such as food, printing, electronics - companies which show good growth potential."
Mr Patrick Flanagan, of Taylor Integrated Planning Services Ltd, says investors should ask themselves: "If the tax breaks didn't exist, would I still invest in this company?"
Many of the established funds do not name the proposed investments when seeking funds, relying on their own track records instead. This can make thing difficult for independent advisers, says Ms Dervla Whelan, of O'Hare & Associates, Accountants, in Dublin.
Ms Whelan says investors are happy to put money into projects through established funds be cause the project managers spread the risk across a variety of investments.
The size of investments vary depending on the individual. "People are investing more than we expected this year", says Mr Simon Coyle, of Chapman Flood, whose company is raising £5 million in BES funds with Ulster Bank markets and NCB corporate finance. He says individuals are investing almost £10,000 each, when it was expected that they would invest around £5,000 per person.
