SME Borrowing Costs Fall – Plus Loan Latest

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.

  • It’s important to note that Money&Co. loans are NOT unsecured. We take a charge on the assets of the borrower, which must be otherwise debt-free. In many cases, we secure the loan against real estate. Our lenders have achieved an average return of more than eight per cent over the last five years, with an annualised bad debt rate of just 0.03 per cent.

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.

The whole pitch – vetted according to our credit committee’s best efforts, though we cannot warrant the accuracy of the statements – is available to logged in users.

 

Historical Performance 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). 

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 0.03 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.

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.



FOLLOW MONEY&CO. ON TWITTER

Search news

You may put double quotes around your search to search for literals. Max. 4 words inside quotes (dashed words count as one word).

Allowed symbols: " ' & -

More from news

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.