Enterprise Ireland, the State agency responsible for nurturing indigenous industry, has warned that the suspension of the business expansion scheme (BES) and seed capital scheme was stymying the emergence of start-up companies.

In an unprecedented move, Enterprise Ireland yesterday issued a statement warning that, with the schemes in hiatus pending European Commission approval, there was a worrying lack of early stage risk capital for nascent companies.

"These schemes are a crucial source of finance to promoters at the formation stage of developing and growing newly established businesses," it said.

"If the current position persists in any protracted way, it will create a serious barrier for entrepreneurs at a point when the development of their businesses and securing international sales requires early stage risk finance not available from other source."

In the last Budget, the Government announced the extension of the schemes and a €250,000 rise in maximum funding to €1 million until the end of 2006.

However, this is subject to European Commission approval, which is not expected for several more months at least.

The Department of Enterprise Trade and Employment acknowledged that any dwindling in seed funding for new businesses was a cause for concern.

Enterprise Ireland's intervention follows repeated warnings by industry that the schemes are crucial for the development of firms in cutting-edge sectors.

Technology companies are thought to be especially vulnerable, with the investment community still reluctant to sink capital into new ventures.

The agency said it was continuing to lobby the EU to green-light the revised schemed.

"Enterprise Ireland is working very closely with the Department of Enterprise Trade and Employment and the Department of Finance to secure the continued operation of the scheme as a priority," it said.