Direct Lenders’ IPO Season A Distant Prospect
Perhaps the least surprising news report of the last few weeks comes to us from our friends at P2P Finance News. The word is that “UK peer-to-peer lenders are unlikely to embark on stock market flotations in the near future”. The industry analysts P2PFN has been talking to are surely right. The catastrophic performance of Lending Club – the market leader and first major IPO in the US direct-lending market – presaged a similar disaster at Funding Circle, whose shares have shed huge value since the day of the IPO. See a recent snippet of our coverage here.
Funding Circle is the only P2P lender to have gone public, having listed in October 2018, and despite platforms such as RateSetter, Zopa and Assetz Capital all expressing intentions to list, no concrete plans have materialised.
Assetz Capital said in June that an initial public offering (IPO) continues to be evaluated as a “future step” while Zopa is rumoured to be considering a public listing but has declined to comment on plans.
RateSetter had long expressed its ambitions to float but this year’s acquisition by Metro Bank makes an IPO highly unlikely.
“It is unlikely that we will see any P2P lender forge ahead with IPO plans in the near to medium-term,” said John Cronin, analyst at brokerage Goodbody.
“The appetite among public equity market investors is likely to be heavily suppressed given the challenges faced by the sector.”
Nic Conner, research consultant for business finance experts Rangewell, suggested that a cautious approach could be a good thing as it means a P2P lender will be able to show that it can survive the current economic cycle.
“With the FTSE 100 at its lowest valuation since 1988, a slower route to listing is not a bad thing for the platforms either,” he said.
“I’m sure we will see more platforms hitting the open markets one day, but it won’t be any time soon, or with the mega valuations of the past.
“That said, future investors will be reassured the valuation of a newly listed P2P lender is based on a proven business model, after being tested by one of the largest economic downturns in history.”
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 £20 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.