Smaller companies are looking more to alternative-finance sources for funding, according to research reported by our friends at P2P Finance News. This is the latest in a series of apparently contradictory (and possibly just attention-seeking) reports on the topic. As we have reported here earlier: “The signals on funding for small and medium-sized enterprises (SMEs) are mixed. Every few weeks research is released that purports to show SMEs are waking up to the funding available outside the traditional banking mainstream. Then along comes data that seems to demonstrate the opposite.”
NEWLY established small and medium enterprises (SMEs) in the UK are increasingly looking to alternative financing to meet their funding needs, new research has revealed
According to the survey from business lender ThinCats, only 31 per cent of SMEs under 10 years old will approach their bank first when seeking funding, compared to 61 per cent for businesses established between 10 and 20 years ago. This figure rises to 71 per cent among businesses which have been established for 35 years or more.
Historical Performance And IFISA Process Guide
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.
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.