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The benefits of investing in SMEs

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The UK’s SMEs play an important role in the economy. There are, according to the Federation of Small Businesses (FSB), 5.5 million private sector businesses in the UK and 99.9 per cent of those are SMEs. In total, these SMEs employ 15.7 million people – 60 per cent of the private sector workforce, with an annual turnover of £1.8 trillion.

Yet, while these figures are impressive and show the importance of SMEs, do they also show that you should invest in these businesses too?

Here are some other benefits to be had from putting your money into SMEs.

Decent returns for your investment

While it would be misguided to offer guarantees on any form of investment, it’s fair to say that you could earn impressive returns with the right investment in SMEs. City AM quoted figures from the British Venture Capital Association which show that investments in UK private equity has outperformed the FTSE All-Share and UK pension fund assets in the last decade – with an impressive 14.9 per cent a year compared to 7.6 and 7.8 per cent.

Diverse portfolios needed

Any investor is wise to have the most diverse portfolio they can afford, to avoid an over-reliance on the performance of a particular asset. That means that an investment in SMEs could sit nicely alongside some online share investments with the likes of IG and a portfolio of properties. Every new asset added to your portfolio strengthens your hand in the long run.

Tax relief

From the Enterprise Investment Scheme to reduced Capital Gains Tax and Inheritance Tax relief, there are a number of ways in which the tax system has been tweaked in recent years to encourage people to put their money into SMEs. It’s well worth investigating these rules to see how you could benefit while making an investment.

Feelgood factor

Not all the benefits need to be financial. Investing in SMEs allows you to support up and coming businesses in your geographical area, which can be for the greater good of the whole community and make you feel like you’re genuinely doing something positive. Not only that but you might find that you’re able to use your skills and expertise to spot and nurture the ‘talent of tomorrow’

It’s easier than ever

There are now a great many opportunities to get involved with investing in SMEs, largely thanks to the prevalence of online crowdsourcing platforms. Indeed, it’s thought that peer-to-peer business loans could be worth £12 billion by 2020, which would mark a tenfold increase on 2014. You can choose what type of investor you want to be too – either offering capital to get new ideas off the ground or pinpointing promising start-ups and giving them the funds they need to be able to grow and get to the next level, depending on your preference.

This ease of investment, coupled with generous tax breaks, the chance to build a diverse portfolio, the opportunity for good returns and the prospect of doing something good with your money all makes for a strong case for investing in SMEs.

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