The European Commission has granted state aid clearance to the UK government, allowing it to make changes to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) investment processes.

VCT and EIS funds invest in unquoted or Alternative Investment Market (AIM) shares of smaller companies. The system allows private investors to back assets that they could not put money into directly.

As a system, VCTs are required to invest at least 70 per cent of their cash in qualifying companies. The trusts raised a total of £330 million in 2011/12, a fall of 10 per cent on what was raised in the previous year.

As part of the coalition government’s finance bill, investments made after 5 April will see maximum annual amounts that can be invested in a single company increase to £5 million.

Further changes will also mean that there will be a rise in the employee limit to include companies with fewer than 250 people and an increase in the size threshold of gross assets of no more than £15 million before investment and £16 million immediately after.

Speaking to GrowthBusiness, Keith Lassman, partner and head of VCTs at law firm Howard Kennedy, says that cash starved growing businesses in the UK, which have been ‘deprived of much needed bank finance’, will welcome the approval from the European Commission.

Howard Kennedy acted on 70 per cent of the VCTs completed in the last tax year, according to the firm, and Lassman adds, ‘These are the very businesses that stimulate the economy and create employment which will put the UK back on its feet.

‘The clearing banks are shut for business but the EIS and VCT bank are not.’