AMBITIOUS small firms and start-up businesses are being encouraged to look at private investors as sources of funding.

Accountancy Deloitte says that the ongoing economic uncertainty means lending from traditional sources is likely to remain difficult to access.

It is highlighting private investment as an alternative source through the Seed Enterprise Investment Scheme (SEIS), which is included in the Government’s draft Finance Bill 2012.

The SEIS will make it more attractive for business angels and investors to support early-stage small firms by providing income tax relief of 50% of the investment to individuals investing up to £100,000 in qualifying companies.

The first year of the scheme will also provide capital gains tax relief to kick-start the scheme, potentially offering tax relief up to 78%.

SEIS starts on April 6 next year and will run alongside the existing Enterprise Investment Scheme. It is part of Government efforts to boost business investment and deal with the funding gap.

Stephen Hall, tax partner at Deloitte in the North East, said: “Since the credit crunch we’ve seen more business angels coming forward and providing finance to companies who haven’t been able to get funding through traditional routes.

“A lot of successful entrepreneurs are happy to invest, they’ve taken risks in the past to get to where they are today, and they’re happy to do so again for the right opportunity.

“Individual investors are much more likely to invest in someone they can believe in as well as relying on due diligence, so you’ve probably only got one chance to impress them.

“With increasing competition for their money, angels are getting more demanding so it is important for entrepreneurs to show they mean business and demonstrate a professional approach to their pitches.”

He believes that the SEIS, alongside the raising of the Enterprise Investment Scheme limit from £2m to £10m, will make it easier for entrepreneurs to win backing for their ideas.

“This isn’t going to be suitable for everyone, but for people with a novel business or an interesting idea that will catch the eye of investors, it could tip the balance in their favour,” said Mr Hall.

“In recent years we’ve seen money attracted to scientific businesses, films and media projects through the EIS.”

The Government is also simplifying the existing rules for the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs), which were introduced in the 1990s and have supported more than £11.5bn of equity investment into UK businesses.