Crowdfunding Can Free Us From Bankers' Yoke


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Investment in British business, with heavy industry and manufacturing at the fore, is at its highest since 1998

The Oxford Dictionary defines the word "blog" as follows: "Noun – A personal website or web page on which an individual records opinions, links to other sites etc. on a regular basis." This is my first blog, and I will be recording my opinions and views about the financial markets and the UK economy on a regular basis.

I am not a trained economist, but I have been working in the financial markets for almost 31 years. One of the things that I have observed over the past couple of years is how difficult it has become for small and medium-sized companies (SMEs) to access capital. Things have become a little easier in terms of raising equity (share capital) as the government improved the tax reliefs available to investors under the Enterprise Investment Scheme and also introduced the Seed Enterprise Investment Scheme to help start-up businesses.

Banks are burdened with massive costs - and a workforce that expects substantial bonuses, whatever the direction of profits

However, debt has proved to be more difficult for SMEs to secure as the banks have continued to pull back in this area. This led me to start Money&Co., which allows investors looking for a better rate of interest on their cash to lend to SMEs who need to borrow money to grow their businesses. We are what's known as a person-to-business (P2B) crowdfunding platform.

In very simplistic terms, banks take the money that we leave on deposit with them and lend it to those who need to borrow - they and keep a massive margin. Bank deposit accounts seldom pay more than 0.7 per cent with the base rate at its current level and it is not unusual for SMEs to be paying 8 per cent interest on their bank loans. Of course, the banks are burdened with massive cost bases – expensive real estate and a highly paid work force that expects substantial bonuses whatever the direction of profits. Online providers of debt are not encumbered in this way and so they can give far more of the interest payments made by SMEs to the lenders. Money&Co. only takes 1 per cent of the interest paid and so instead of getting 0.7 per cent, if a company is paying 8 per cent, our lenders will get 7 per cent net of our 1 per cent fee.

Much has been made of the strength of the UK recovery, but it must be remembered that we have endured years of pain post the banking crisis. If one looks at GDP per head ex-inflation, Britain has still lagged France over the past six years, even given the weakness that France is now experiencing.

One of the bright spots of the recovery has been the strength of the manufacturing sector, which is currently expanding at an annual rate of 6 per cent. The Manufacturing Advisory Service released the results of a survey of 800 firms on 28th May, which revealed that 61 per cent were seeing increased sales and 54 per cent had started to recruit again.

Helping fund an SME loan will give you a better rate of return on your cash

It is not just the manufacturing sector that is seeing growth. Business investment across all sectors is growing at an annualized rate of 8.7 per cent currently and has risen in each of the last five quarters. Britain has not seen such a sustained growth in business investment since 1998.

If the good news is to continue, it is vital that SMEs have access to the capital that they so badly need in order to grow. We are still hearing constant reports that the banks are withholding lending. They are being asked by the government to lend more to SMEs, but at the same time, regulation has become tougher after the banking crisis, which makes it impossible for the banks to grow their SME loan book. The government has recognized that alternative lenders have an important role to play and it has been lending alongside some of the more established crowdfunding sites.

Almost half the UK workforce is employed by SMEs. Giving them a fraction of the £1.4 trillion invested in bank deposits would propel Britain forward

In addition, it was announced in the Budget that investors will soon be able to put SME loans in ISAs and that the distinction between "cash" and "stocks and shares" ISAs is to be abolished with each adult in the UK having an allowance of £15,000 to invest in a New ISA (NISA). It is not clear exactly when it will be possible to put an SME loan in a NISA, but I have been in touch with the Treasury and was told that they are going to enter into a period of public consultation shortly.

Helping to fund an SME loan will give you a better rate of return on your cash. It is important to spread your risk and build a portfolio of loans, as you would do with a share portfolio. The overall rate of return that you can expect on a diversified portfolio net of charges should exceed 6 per cent per annum. I somewhat doubt that you will get a better return than that from the stock market over the long term. Yes, it had an exceptional return last year, but it still has not surpassed the high that it achieved in 2000 and, when you take into account inflation over that period, returns from shares have been very poor over the last 14 years.

Investing in SME loans will help Britain to sustain its nascent recovery. Almost half of our work force is employed by small businesses. Growth absorbs cash and there is plenty of our cash sitting on deposit in banks earning virtually no return. The latest estimate is that bank deposits stand at £1.4 trillion. A fraction of that being invested in SME loans will help to propel Britain forward to greater economic success.

To learn more about lending to our borrowing businesses, click here. Prospective borrowers can learn more about the Money&Co. process here.

Parts of this blog are reproduced in the Metro newspaper.



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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.