IT COULD be frequent calls from their accountant or maybe a flurry of advertisements as they flick through the financial pages of the paper, but over the coming days and weeks, investors may notice that they are being bombarded with invitations to speculate on risky, early-stage companies. Why? Because Business Expansion Scheme (BES) season is upon us.

In the last quarter of each year, the machine behind the scheme whirrs into action as nascent companies in need of finance try to entice investors to part with their money.

One of the key selling points that BES-designated companies will be touting is the tax relief available at the higher rate to investors, on amounts of up to €150,000 a year.

The relief is available in the year of investment, so to receive relief in 2008, investors must hand over their cash by December 31st, 2008. This year, seasoned investors should notice a marked improvement in the calibre of companies parading their wares on the BES catwalk.

The main reason for this is the tightening credit market: it is now much more difficult for companies to get finance from banks, and many venture capitalists (VCs) are keeping their hand in their pocket for the time being.

What this means is that many strong companies that would not normally have considered the BES route have little choice but to do so this year. The upshot for BES investors is that pickings have become considerably richer.

"Because of the tightening credit environment, the calibre . . . of companies coming at us is unprecedented and we're in a position to negotiate stronger and better deals with the companies, eg, get better returns for investors," notes Sinéad Heaney, of BDO Simpson Xavier, which in collaboration with Davy Stockbrokers, is the biggest player in the BES fund market.

A number of companies in the software and technology sectors are targeting BES funding, as well as a number of small businesses operating in the renewables space.

However, most BES funds - which enable individuals to spread their investment across a range of companies, as opposed to buying shares in just one company - aren't sector-specific, but rather invest in a broad range of sectors.

The quality of BES companies this year may be higher, but will individual investors be willing to venture where banks and VCs fear to tread?

With the economy slowing, unemployment rising and consumer confidence plummeting, will increasingly disillusioned investors be in the mood for a high-risk punt, albeit one that is tax-relieved, or will they run to ground? That depends on who you talk to.

"Everything is set against the backdrop of the global downturn, so interest in investment is depressed overall," says Shane Hegarty of the Irish Software Association.

However, Conor O'Neill, who has just launched a BES fundraising round for his technology start-up Argolon, which trades as LouderVoice, has been surprised by the relatively positive feedback so far. Although investors are being much more cautious, there are indications that there is still appetite out there, he says.

Investors seem to be looking for alternatives because traditional investment avenues such as property have fallen out of favour, O'Neill observes.

On the other hand, Keith McGuigan, of Horwarth Bastow Charlton in Limerick, which is now launching its 2008 BES fund, concedes that raising funds in the current climate is going to be "a difficult ask".

Last year, the firm raised €6.5 million for their BES fund. Although they'll aim higher this year, they'll be "very satisfied" if they come in at the same level, McGuigan says.

"I think that if you speak to anybody they'll say that fundraising is almost impossible in the current market and that people aren't parting with their funds," says Heaney. "I think that BES is probably the exception to some extent, because of the tax shelter [aspect]."

BES is one of the very few tax incentive schemes still open to investors. The plethora of other schemes available in the past, which were mainly property-based, have to a large extent been wound up.

In fact, contributing to a pension is pretty much the only other mainstream method of sheltering income from tax.

The usual rush to make pension contributions before the October 31st deadline to avail of tax relief for the previous year is in full flow. People in the pensions industry say wealthy clients will continue to concentrate on "maxing out" their pension contributions after the deadline, before the changes announced in last week's budget come into effect.

The annual earnings limit for calculating tax-relievable pension contributions has been reduced to €150,000 for 2009, down from €275,239 in 2008. That might mean less money being available for investment in schemes this year as a result of wealthy investors diverting funds into their pension, which in previous years might have been allocated to BES investments.

Some advisers suggest this fear might be overplayed. Depending on where a person's pension was invested, they might not be so keen to pour more money into a retirement fund that has been haemorrhaging money in recent months.

The level of returns that investors in BES schemes can expect at the end of the minimum five-year investment period can vary significantly.

BES investments are, by their nature, high-risk. An annualised return of 10 per cent would be considered good going, but there is no guarantee that you will see any of your money again, as BES investors in furniture retailer House of Denmark and Tralee Beef and Lamb found out painfully when these firms collapsed in 2002.

However, investing through a BES fund rather than directly in one company tends to reduce the risk of losing your shirt completely. "You're spreading your risk across a portfolio of companies," says Heaney. "So if something goes wrong in one of those companies, you still have all the other ones to fall back on."

"What we typically try to do is double your net costs ," she continues. "That's the objective and we have achieved that in the past."

Whether a BES investor is going down the direct route or through a fund, it is vital to check what level of fees are being applied by their adviser or fund provider, as this could make a serious dent in any returns that may arise.