Institutions Welcome - But Let's Keep Small Lenders In Crowdfunding
The question keeps being asked: Is the crowd (ie, the retail lender) going to be squeezed out of crowdfunding? Our friends at P2P Finance News report that "a number of purely institutional products have been unveiled recently in the peer-to-peer lending sector". The question then posed by P2PFN is whether this to the benefit or detriment of the retail investor.
In April, Funding Circle announced that it was winding down its dedicated investment trust and would be launching two new institutional products in the UK: a UK private direct lending fund and a UK bond product.The platform is hoping to bring in over £200m from institutional investors over the next few years."[The new products] will further expand the universe of investors that can access loans on our platform and continue to diversify our sources of funding, in line with the strategy we set out at initial public offering," chief executive Samir Desai said at the time.The following month, Assetz Capital revealed that it had launched a Luxembourg-based institutional fund to help scale up its lending. The fund "further expands the universe of investors that can access the Assetz Capital marketplace, alongside our valued retail lenders," said the platform's chief executive Stuart Law.There has been a steady rise in institutional flows into the P2P space over the past few years, as platforms look to diversify their sources of funding and secure bigger volumes to scale up loan originations.
Loan Latest 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). Our latest, property-backed offering yields 8 per cent and has a five-year term.
That figure is the result of over £17 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 one bad debt so far, representing a bad debt rate of 0.04 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.