Government Loan Schemes: Bounceback Or Flip-Flop?

  • The UK government has been criticised for a number of economic and general policy somersaults during the Covid-19 crisis. Our friends at P2P Finance News reports on what looks like the latest unfortunate event.

Banks are pressuring borrowers to payback coronavirus business interruption loans (CBILS) early, it has been claimed.

Richard Churchill a business advisory partner at Blick Rothenberg has said that banks are asking borrowers to repay loans earlier than necessary despite 80 per cent being guaranteed by the government.

“The banks are changing their attitude to loans and in many cases are requesting that firms pay back some or all of the loans, earlier than planned,” Churchill said.

“This is extremely worrying especially as the government-backed scheme guarantees the bank 80 per cent of the loan they are making, and their risk is much lower than it would normally be.

“The banks are putting businesses under pressure they do not need, which is going to be extremely damaging to UK businesses that have changed business models and produced forecasts going forward on the basis of their existing funding.

“Clearly when a business needed borrowing to survive, it is not able to repay significant elements of this only a few months later.”

Churchill said banks need to be reminded of their responsibilities to support businesses and added that a more practical step to help solve the issue of affordability assessment would be for the loans to be able to be extended over a longer period, therefore reducing the annual repayments for borrowers.

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 £21 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 two bad debts 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.



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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.