CITM3020 - Investment by community development finance institutions (CDFIs): Meaning of “qualifying enterprise”

SI2003/96 Regulation 10; SI2003/96 Schedule 1(6)

Accreditation as a CDFI is conditional on the accredited body investing specified proportions of its investment fund in qualifying enterprises within defined time limits (see CITM3005).

An enterprises is a qualifying enterprise if:

• it is a small or medium-sized enterprise as defined in Regulation 10 of SI2003/96,
• the CDFI can demonstrate that when the investment was made the enterprise was unable to obtain finance from other sources, and
• it falls within one of three Cases:
• Case 1: Case 1: enterprises located within one of the geographic areas listed in Annex A of the Department for Business and Trade ( DBT) “Material Concerning the Accreditation of Community Development Finance Institutions” – see Community Investment Tax Relief: accreditation of community development finance institutions
• Case 2: enterprises located in areas which the CDFI can demonstrate, by reference to government-recognised measures of disadvantage, have a level of disadvantage comparable to those identified in Annex A of the BIS Material, see the link in the above bullet
• Case 3: enterprises owned and operated by, or intended to serve, individuals recognised as being disadvantaged on account of their ethnicity, gender, age, disability or other similar defining characteristic.

But there are restrictions on the extent to which a CDFI can use its investment fund to invest in enterprises within Case 2. Any investment that causes the amount or number of such Case 2 investments to exceed the amount or number of similarly-funded investments in enterprises within Cases 1 and 3 is not regarded as a relevant investment (see CITM3030 and CITM3040) for so long as that excess exists.