Has a property market peak shifted focus to small business investment opportunities?

Investment habits have changed rapidly over the last few years in the UK and people are spoilt for choice; from property to small businesses, there are various avenues that could provide a source of passive income. There has been a steady increase in property investments over the past decade, however, small business investing has become a potentially attractive opportunity for many looking to help fuel business growth whilst taking advantage of tax incentives from the government through the Enterprise Investment Scheme.

The UK housing market has registered substantial growth over the past few years, causing property investing to become more popular, with recent news showing that the average asking price in the UK now stands at £360,101 – representing a £19,082 increase over the past three months. However, industry experts predict the growth in UK house prices to flatten out throughout the year, in large part due to rising energy bills and a cost-of-living crisis leaving people with less capital and subsequently cooling the market.

Whilst the property market has grown steadily over the past few years, the small business landscape has seen substantial growth in the UK. In 2021 there were a record 319,000 new businesses registered in the UK, with the total number now standing at a staggering 5.5 million. Recent research from FreeAgent also shows that two-thirds of the UK workforce want to start their own company – illustrating a continued desire, caused by the pandemic, for individuals to start a business of their own.

Not only are more firms being formed at an impressive rate, but this is also being matched by an increase in investment in this sector. Equity investment in UK SMEs hit a record high of £8.8bn in 2020, and this continued into the first quarter of 2021 with a further £4.5bn being raised. The introduction of the EIS in 1994 has made investing in small businesses a potentially very enticing prospect as the government provides backers with attractive tax incentives for their investments.

This has subsequently resulted in a new wave of capital sweeping through the SME sector which is stimulating the UK economy. Proprietary research from IW Capital shows that 16% of UK investors are looking to back start-ups and newly formed businesses, suggesting they will be given a platform to continue the success and progression of their companies throughout 2022.

Luke Davis, CEO of IW Capital discusses:

“This past year has had an impact on the UK in ways that we could never have predicted; it has created a new class of investor, an individual who is concerned not just with their investment returns but also in supporting a new future of small business growth.

“The EIS could also be an important trend throughout 2022, small businesses and SMEs throughout the UK have benefitted enormously from the EIS in the last 25 years, fuelling growth and job creation at an impressive scale. SMEs are becoming so inventive and versatile, ensuring they’re resilient to the current economic pressures we’re seeing and making sure they are at the forefront of the UK business scene.”