The new business year has begun with the usual rash of predictions from pundits talking their own book. One of the less partial and more interesting comes from an opinion piece published in AltFi.
The prediction of closer union between mainstream asset management and platform lending is well argued, and such a development will serve both parties well. Not all lenders are aware of the do-it-yourself nature of most platform lending.
Whilst platforms vet prospective borrowers carefully (or at least they should do), the act of choosing a borrower may be too much for many a lender. Here at Money&Co. we have asset-management permissions within the management group, and can offer a managed service. Few other platforms can do the same. The move towards one-stop, simplified product offerings is one to welcome.
As the market size grows and the processes mature, more institutional capital will be attracted to the opportunity. Direct investment by non-specialists is proven difficult for many reasons such as costs and expertise of due diligence process, tax and legal opinions on the platforms and the loans acquired, statistically relevant minimum size and multi-vintage mix, credit scoring methodology and execution process, back office issues about position checking, daily cashflow monitoring, performance tracking… For all these reasons, investors will seek to support the new asset management industry that provides expertise and size and cost mutualisation.
Historical Performance And IFISA Process Guide
That figure is the result of over £19 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.