The hokey-cokey reporting of SME lending continues. As we have reported earlier on this platform: “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.”
The latest news snippet, seen in isolation, is not particularly encouraging. Here it is, courtesy of our friends at P2P Finance News.
ONLY five per cent of small businesses that have been referred to alternative finance providers under the Bank Referral Scheme have gone on to get a loan, official data shows.
The Bank Referral Scheme, launched in November 2016, mandates nine of the UK’s largest high-street banks to pass on the details of small businesses they have turned down for loans to three finance aggregator platforms – Alternative Business Funding, Funding Options and Funding Xchange.
The latest Treasury data shows 30,000 small businesses which were rejected for finance from one of the big banks have been referred under the scheme as of 30 June 2019, but just 1,650 have secured more than £32m of funding.
So what does all this mean? One argument is that no-one’s really in charge, that communication to SMEs is poor, that awareness of alternative funding is patchy.
Our own position is clear: We’ll still be here, Brexit and associated downturn or not, ad lending, so long as the companies seeking funds are good and the lenders continue to want good returns on capital, will continue.
New Loans
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.