DIY Investor Magazine
/
Jan 2017
33
market businesses – who are seeking between
£500,000 and £4million of funding. Investors can bid to
lend from £5,000 upwards to these businesses, typically
targeting returns of between 9% and 12% gross per
annum. Bonds will always offer a form of security and
those with a term of 12 months or more are transferable,
giving investors the opportunity to trade before maturity.
Furthermore, borrowers can opt to include additional,
performance-related upside in their offering, such as
royalties, warrants, or convertibility into equity.
UKBN’s lending team undertakes thorough due
diligence and manual credit analysis for each bond
alongside independent legal counsel, before compiling
a suite of offer documents for investors to review. These
include a term sheet, an example return illustration,
the full legal documentation and a verified company
presentation.
UKBN is the first platform of its kind in the UK and is
one of a select group of marketplace lenders to be
directly authorised by the Financial Conduct Authority to
date.
Funding Circle allows investors to lend directly to small
and medium-sized businesses from as little as £20 per
time. Now operating on both sides of the Atlantic, it has
facilitated over £1.6billion in loans to UK SMEs alone.
Lenders can either back individual businesses, or select
an ‘autobid’ feature to spread the risk across several
companies. The platform charges borrowers a fee on
each funded loan and lenders pay an annual service fee
of 1% of their outstanding repayments.
Funding Circle lends from £5,000 to £1m over six
months to five years, with an average loan size
requested of £60,000. The average return for lenders
is 7%c after fees and bad debts. Investors can earn
returns of 7.3% a year (as at 4th November) and will
be able to do so tax-free ‘soon’ through an Innovative
Finance ISA.
In 2014, the Government-backed British Business Bank
invested £40m alongside other investors to provide
more efficient finance to SMEs.
Zopa was the UK’s first P2P lending service and
has advanced in excess of £1.8bn to over 150,000
people since it was founded in 2005. Borrowers can
be individuals or businesses, but they are typically
home owners with an income of £30,000 to £40,000
who are seeking cash to buy a new car, make home
improvements or consolidate debt. The APR varies from
3.9% to 34.9%.
Lenders select one or a combination of three different
Zopa products to invest in, depending on their risk
appetite: Access, Classic and Plus, yielding 3.1%,
2.9% and 6.3% respectively. The Access and Classic
products are protected by Zopa’s ‘Safeguard’ fund,
which currently stands at over £12m to cover expected
losses.
Investors can withdraw their money for free as and
when borrowers repay (they often do so early), but
for those who lend via the Classic and Plus products,
withdrawal (or, more accurately, selling loan parts) incurs
a 1% charge. Access and Classic have a £10 minimum
investment while for Plus it’s £1,000.
Not only is P2P shaking up cash lending, it’s also
sweeping the invoice finance market.
