Vol. 487 No. 4
16 Mr. Stagg asked the Tánaiste and Minister for Enterprise, Trade and Employment the new initiatives, if any, she is planning in relation to the availability of equity finance for start up and micro enterprises; and if she will give consideration to introducing an equity finance vehicle modelled on the United States small business administration. [4100/98]
I am currently examining, in conjunction with my Department, a number of options which, if they come to fruition, will significantly improve the provision of seed capital for early stage business. I hope to be able to report more fully on these options soon.
The reduction in the ceiling for BES investment to £250,000 will refocus the scheme on those smaller firms which find it most difficult to attract equity from outside investors. In addition, the reduction in the rate of capital gains tax from 40 per cent to 20 per cent will contribute significantly towards increased investment across the economy, including the investment requirements of the small business sector.
It should also be noted that there has been a resurgence in the supply of venture capital in recent years. In this regard I would particularly like to mention the seed-venture capital measure under the operational programme for small business.
Given the initiatives already in place and those that are still at planning stage, it is not my intention to introduce an equity finance vehicle modelled on the US Small Business Investment Corporations, SBICs. The SBIC programme is the principal means of US Government support for encouraging the growth of small businesses at an early stage of development. The approach is based on a partnership with private capital. The SBIC model is, therefore, similar in many respects to the seed-venture capital measure already in place.
I know from my experience as a director of a small community centre in my constituency that this is an ongoing and serious problem. When my party Leader, Deputy Quinn, was Minister he sought to put in place a major funding mechanism for start up enterprises. The Minister might consider revisiting this proposal as a matter of urgency. A significant number of small business people are trying to put in place a mutual type structure based on European models, something we never had. This structure would be similar to the credit union system. Has the Minister had any contact with these people or has she done anything to support them?
On county enterprise boards, I know from experience that the amount——
A question, please, Deputy.
The finance available to boards for start up businesses in the Dublin region is minuscule compared to the demand.
The availability of finance is less of a problem now than it was 12 or 18 months ago because of the low interest rates. The difficulty relates to what is termed very high risk potential new business and the conservative attitude adopted by financial institutions in assessing whether they will support certain ventures. We have operated a number of seed capital venture funds over the past year. For example, a total of £83 million has been provided for small business through these funds. I am currently in discussion with one of the major banks in relation to a new venture fund for what could be described as high risk business. Under this fund very generous and substantial aid will be given to new enterprises in high risk areas which might not normally be assisted by a financial institution.
On a review of agency structures and how the State supports indigenous industry, obviously the issue of finance will be thoroughly examined. There is a debate about whether we should give grants, soft loans or equity investment. We have not decided which is the best way to assist industry but most of the arguments tend to favour equity investment rather than grant aid. We will put in place an appropriate mechanism to support companies in the early stages of their development.
The American model has helped many corporations and micro systems, including Intel and many of the multinationals we are so happy to have here. We want to grow our own multinationals but this has been subject to much criticism. There have also been many failures. There is no obvious way in which to help small business to gain access to finance and a combination of mechanisms is required. Flexibility is desirable depending on the enterprise and the sector in which it has to operate. I assure the Deputy that this is a matter of great concern which we will examine in the context of the support given to industry.
What is the Minister's view of the European model?
We have examined the European, American and other models and do not have a closed mind on them. There are three or four different ways in which one can help companies and it is a question of using the available resources which come from either the Irish taxpayer or the European taxpayer in the most effective way. For example, £31 million of the £83 million to which I referred came from the European taxpayer. We must use the resources available from whichever source in the most effective way, and I have an open mind on how we should do this.
