Direct Lender Boss Calls For SME Help Via EIS Stimulus

Senior figures in direct platform lending, or peer-to-peer lending, have suggested there is an opportunity to tap into a £75.5 billion “lockdown savings” market. Nicola Horlick, CEO of Money&Co., is among those opining in a story run by P2P Finance News.

Joint research by multi-asset investment platform eToro and the Centre for Economics and Business Research showed those fortunate enough to have more discretionary income during lockdown are on course to save an average of £1,434 each in the three months to June.

The restrictions on movement have meant that, despite many workers being furloughed and the financial hardships from Covid-19, a significant number of people have been able to make regular savings on travel costs and other daily expenses.

This adds up to £75.5bn of ‘lockdown savings’ in the second quarter of 2020 – more than double the previous quarterly record of £37.2bn which was set in the first quarter of 2010.

The Bank of England’s Money and Credit statistics data showed that savings increased by a record £25.6bn in May, even more than the £14.3bn rise in March and £16.7bn in April.

This compares to a pre-pandemic average of around £5bn a month.

“There’s an opportunity for P2P if people believe the natural thing would be to invest,” said David Bradley-Ward, chief executive of Ablrate.

“But it’s still too early to see if there will be a big impact, we’re still unsure of where we are in the cycle. A lot will be returning to cash until we understand where the market is.”

Daniel Rajkumar, managing director of Rebuildingsociety, said that it’s great that so many people have been resourceful during this time and he would encourage them to invest and save while the economy recovers.

The average rates for easy-access savings fell to 0.29 per cent in May, down from 0.41 per cent in April, the lowest since the Bank of England’s records began in 2016. Rajkumar pointed out that with savings accounts offering little in returns, P2P presents a good opportunity for investors.

“Not much is to be gained from savings accounts and the stock market is still up and down,” he said.

“P2P lending is a good way to earn gradual compounded returns above average, above the Bank of England’s 0.1 per cent base rate notwithstanding the risks, so I’d encourage them to look at alternative investment products.”

However, Nicola Horlick, chief executive of Money&Co, said it might not be a good idea to market to these lockdown savers because it’s difficult to find sufficient, good, safe loans for retail investors in the current climate.

“It’s not easy to find good loans that are safe so it’s not a good idea to launch a big marketing strategy at the moment for retail investors,” she said.

“It depends on market conditions. If we’re in the worst economic downturn in modern history it’s too early to tell what would happen and if there would be another lockdown.”

Historical Performance And IFISA Process Guide

  • Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). 

That figure is the result of over £20 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.

  • Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.

All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.

So here’s our guide to the process:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.

Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.

Risk: Security, Access, Yield

Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.