Today, we bring you a new snippet from the running theme as reported in this News section of convergence between the mainstream and the alternative-finance sector, with the announcement of the grant of a new banking licence.
SME credit card lender Cashplus is now a full-on SME bank.
This morning the Prudential Regulation Authority granted Cashplus an unrestricted banking licence, with approval to start using its £500m in customer deposits for lending.
It’s a move which has huge implications for the SME challenger banking sector, as Cashplus claims to serve 7 per cent of all new UK businesses serving over 1.6m customers since it launched in 2005.
“Where some firms have burned through piles of cash in the pursuit of growth at all costs, our disciplined approach and positive product economics mean that we can grow with confidence,” said CEO and founder Rich Wagner.
“Now we’re a bank, there is a tremendous amount of potential waiting to be unlocked.”
Wagner said the approval would help his bank lend £1bn to SMEs with Cashplus aiming to serve 10 per cent of all new businesses by 2024.
Cashplus’s arrival as a full bank is a further challenge to Starling Bank, Monzo, Revolut and Tide* which have all gained massive traction in the business banking sector—particularly Starling with its over £1.4bn of SME lending.
Historical Performance And IFISA Process Guide
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.
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:
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.