Bernard Ginns: Angels can act as guardians to our smaller businesses

To be successful at attracting inward investment, you need all the usual things that strong economies possess, such as excellent infrastructure, a skilled and flexible workforce, a competitive cost environment and supply chain readiness.

In recent years we saw the regions prettify themselves in the hope of catching the eye of multinationals, in some cases offering taxpayers' money as incentives to foreign investors to bring jobs to their areas.

Inward investment is fine in itself, but Yorkshire should not hope that its economic recovery will be through this alone. Multinationals might have a lot of cash after undergoing major cost-cutting schemes during the recession, but they are not in a hurry to spend it, given the prevailing uncertainty.

There is an alternative, more immediate way to stimulate the economy in Yorkshire. It involves high-net worth individuals who have made their fortunes in Yorkshire reinvesting some of their wealth in small businesses to help them grow. Business angels, in other words.

Bank lending is still hard to come by, particularly if you are a new business, because financial institutions have changed their approach to risk. That's not likely to improve in the short term.

This is where the business angels can step in. I'm not suggesting they can transform access to finance for SMEs, but they can do their bit to help small businesses with growth potential that are currently being choked by the lack of credit.

They can also lend some valuable experience in mentoring roles. It's often a lonely job running a business and the wise words of someone who's been there, done that and maybe had a failure along the way can be very welcome at times.

Another advantage is that the conditions for investing in small businesses have never been better.

If you have got several million quid sitting in the bank, you won't be getting a very good return on it, given the historically low interest rates.

The stock market favours only the brave for the foreseeable future and property, traditionally seen as the safest place to invest, has wiped out the fortunes of many speculators in recent years.

Alternatively, you could invest in emerging market funds, as lots of high-net worths seem to be doing, in the hope of getting better returns. A sort of reverse inward investment, if you like.

Or, and this is what I really want to see, you could give something back to the region that helped make you great and give a helping hand to small firms with large potential.

There are lots of wealthy business people in Yorkshire. The region's top 10 wealthiest have a combined wealth of nearly 7bn. The next 10 would surely bring at least another 1bn to the party. That's a lot of residual wealth. How many potentially great businesses could be helped on their way? A great many. Further, you do not need to be uber-wealthy to be a business angel.

There are tax relief schemes available to potential angels. These include the enterprise investment scheme (EIS), the subject of some discussion at a Yorkshire Post business lunch this month. The purpose of the lunch – organised by Cicada Communications at Hazlewood Castle – was to hammer out the big issues facing business after the dust settled from the Comprehensive Spending Review.

The conversation went quickly from the lack of bank support for SMEs to alternative sources of funding, including EIS, and how there are several things the Government could do to increase the attractiveness of this scheme to would-be angels.

According to Andrew Burton, managing director of Viking Fund Managers, improvements would include extending EIS relief beyond preference shares to debt and preference shares, a relaxation of the three-year rule to qualify for relief, EIS tax relief for investment in larger firms and even higher levels of relief in smaller firms.

For David Hughes, chief executive of financial adviser and insurance broker Ellis Bates, the issue with both EIS and venture capital trusts is that would-be investors are ineligible for income tax relief if they are employed or connected with the business they are investing in.

He would like to see employees and directors be given the benefits of EIS and a smaller minimum investment to widen participation.

The Government is looking at how the private sector can get the finance it needs to grow. It should act on them. Small businesses cannot grow without finance. Business angels can play an important role in this. It must be tax-efficient for them to do so.