Good news for borrowers in the alternative-finance sector. The total cost of short-term unsecured borrowing from alternative lenders for most credit-worthy businesses has fallen below 9.5 per cent since March, according to newly published independent research.
Our friends at AltFi take up the story.
Funding Xchange, which tracks the lending activity of 40 specialist SME lenders, says the average rate now beats that offered by mainstream banks with representative APRs of 9.9%.
The figures come from an 18-24 month loan which would be approved by 60% of applicants.
“I am delighted to see that by bringing transparency to the SME lending market, and at no cost to the SME, competition is driving cost of funding down to lower rates for small business borrowers,” said Funding Xchange Co-Founder Katrin Herrling.
“As economic conditions are predicted to deteriorate, funding will become a lifeline for many small businesses.
New Loan Latest
The new loan offering on site is a second tranche offered by Yes You Can. It’s a B-rated offering, over of five-year term, with a fixed rate yield of 11 per cent gross. It’s four per cent filed at the time of writing.
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.