More businesses than ever are obtaining funding through the Enterprise Investment Scheme (EIS), with more than £1 billion pouring into startups and growing businesses last year.

The scheme was set up by the government to provide tax relief for investors who back businesses. Last year, 2,718 businesses received investment through the scheme, up from 2,336 the previous year, according to figures from Chancery Investment Partners.

Applications have been driven by the credit crunch; with bank finance harder to come by, growing numbers of entrepreneurs have sort funding by giving away equity.

The scheme was further boosted in 2012, when ministers raised the annual funding limit to £5 million, allowing bigger businesses to benefit.

Gary Robins, partner at Chancery Investment Partners, said: “EIS is becoming ever more popular among credit-starved SMEs looking to fund the next stage in their growth.

“The new, improved, EIS has been a big hit with businesses that would have been too big to use it before. These are well-established, stable businesses that are ready to take their proposition to a bigger audience but who need funding to do that.”