SME Funding Optimists: Badly Informed Pessimists?
“Despite economic uncertainty, angel investors are continuing to invest in early-stage businesses and are optimistic about the future, the British Business Bank has found.”
- Is this a realistic appraisal or something akin to the jingoistic drivel (eyes, shut, fingers in ears – it’s all fine) we’re being fed on the political front?
- Our friends at P2P Finance News report, to help you judge for yourselves:
The bank’s UK Business Angels Market report 2020 found despite almost half of angels reporting a negative impact on their investment activity from Covid-19, more than half (57 per cent) of angel investors had made an investment between April and July this year.
Furthermore, 46 per cent expect to make new investments to add to their portfolio during the remainder of the financial year.
Since the onset of Covid-19, more than half (54 per cent) of business angels have increased their engagement with their investee businesses. However, the values of investments are lower than last year.
The value of initial investment fell by 31 per cent from £100,000 in 2019 to £69,000 this year while the value of follow-on investments dropped by 34 per cent from, £70,000 last year to £46,000 in 2020.
The majority (45 per cent) of angel investors pointed to greater caution caused by economic uncertainty as the main barrier to investment.
Despite this, nearly three-quarters (72 per cent) of angel investors are confident about future growth in the value of their portfolio over the next 12 months.
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.