If you are looking for a no hassle income investment, wrapped up in a tax-efficient Innovative Finance ISA (IFISA), investing through the Crowdstacker peer-to-peer lending (P2P) platform may be a good option. Crowdstacker facilitates P2P arrangements between lenders/ investors and British businesses, where asset security is held over every loan and returns up to 7% per annum can be achieved, depending on the loan you wish to select and invest in.
(*statistics and information correct at time of publication Sep ‘16)
Estimated returns/rates (gross and capped per annum)
Amicus Plc: 6.39% p.a (3-year term)
BurningNight Ltd: 7% p.a (3-year term)
More information on these investment opportunities below.
Crowdstacker has had no defaults since launching in 2015 and expects to incur no defaults in 2016. This is largely due to the extremely limited number of businesses listed to invest in.
Historic default rate
Estimated default rate 2016
It’s worthwhile noting that these rates are perhaps more relevant to major P2P platforms, rather than a manual selection platform where only a couple of companies are listed at a time.
‘Crowdstacker has had no defaults since launching in 2015’
Total lent funds to-date
Crowdstacker facilitates loans to UK businesses and stresses the importance of a solid, robust and experienced management in their borrower criteria. As the businesses borrowing money on Crowdstacker are typically larger than those accepted onto other P2P platforms, there is an argument to say that the risk of default is reduced. This hypothesis assumes that smaller, less established businesses are more volatile and therefore riskier to lend to.
£500k – £50m
12 months – 3 years
One in 30 companies get accepted onto the Crowdstacker “stack” – the stack is their list of investment opportunities. While diversification is very limited, with only ever a couple of borrowers to lend to at a time, Crowdstacker stresses the importance of due diligence, screening and transparency, devoting time to ensuring a couple of reliable borrowers are listed. Their due diligence processes are more akin to that of traditional finance.
‘If you are looking to gain exposure to established SMEs, Crowdstacker offers well-vetted opportunities with asset security on all loans.’
This process is integral to structuring the loan and security package, so investors can receive the best interest rates on the market with confidence in their own risk weighting.
Some key things Crowdstacker look at when vetting a business:
1. Financial health: stress testing financial projections and ensuring they correlate with historic performance.
2. Asset security: identify assets and their value, which can be held as security over the loan.
3. Management: meet the management team in person at the businesses premises.
BurningNight Ltd, an investment opportunity currently listed and described below, has been profitable each year for the past five years, increasing turnover to c£17m this year end in June.
All loans accepted onto the Crowdstacker “stack” have been secured on asset debentures; this is not set to change in the future. Asset debentures and cross guarantees are taken on companies and available subsidiaries to ensure max. level of security on loans, where possible. The security is held in an independent Security Trustee.
As an example, BurningNight Ltd offers three levels of security:
1. First ranking debenture on BurningNight assets.
2. Six principal subsidiaries provide cross guarantees on the liability to the Security Trustee.
3. Two subsidiaries provide first ranking debentures on all assets and the business.
‘All loans accepted onto the Crowdstacker “stack” have been secured on asset debentures’
The Crowdstacker Investment Process
The Crowdstacker investment process is simple:
- Crowdstacker presents businesses that want to borrower money – they call these investment opportunities their “stack”.
- As an investor, you manually select the businesses you want to lend to from the stack.
- You earn interest every quarter and you receive your capital at the end of the loan term.
Businesses listed on Crowdstacker have a total target fund raise, broken down into monthly tranches. The closing dates of these tranches, listed on the Crowdstacker platform, are important as you will start earning interest on your investment seven days after the closing date. Investment tranches will be issued each month until the total fundraise has been achieved.
Currently, in the Crowdstacker stack there are two businesses seeking to borrow money: ‘Amicus Plc’ and ‘BurningNight Ltd’. (More below)
Crowdstacker Products & Returns
Amicus is a short-term property lending business. You lend your money to Amicus through Crowdstacker and Amicus lend on a short-term basis to property developers, landlords and property professionals. These loans are known as bridging loans.
BurningNight is the owner and manager of a group of bars and clubs across England. The Limited company has six subsidiaries, focused on large premises located in major cities such as, Leeds, Liverpool, Manchester and Cardiff. It is in these mass-populous locations where they operate their concept-based bars.
BurningNight Ltd is looking for £3.5m to continue its already successful roll-out program of multi-branded concept bars in key cities around the UK.
Double credit risk (Amicus only)
Amicus is a lending business. Therefore, there is a risk around Crowdstacker’s Credit scoring on Amicus and Amicus’s credit scoring on the businesses it lends to.
As an investor, you are required to manually select the businesses you lend to. With only two businesses listed on the Crowdstacker platform, there is little opportunity to diversify your funds. That said, lending to one or both businesses as part of a larger portfolio may be a good strategy.
Whether you choose to lend your money to BurningNight or Amicus, there is risk related to the property market and economy more largely. If the markets drop, as was seen in 2008, then the value of the assets securing the loans will drop meaning they may not cover a loan default – in the event of one.
Once your funds are out on loan (past the closing date), you will not be able to access your money before the end of the term. There is a match bargaining system on the Crowdstacker platform, which allows lenders to transfer their loans to other lenders. A £15 fee applies and there is no guarantee a transfer will occur. This is fairly standard when it comes to peer-to-peer lending, however.
Crowdstacker’s traditional approach to screening borrowers means the approving and structuring of a loan to be presented in the “stack” takes time. This is to ensure investors are presented with the best loan opportunities available.
Where lending to Amicus suggests putting all your eggs in one basket, the reality is Amicus diversifies your money for you, by lending to multiple businesses themselves.
With Crowdstacker investments, you can earn a fixed return on your capital. Currently, they have four rates on offer: 4.32% p.a; 5.43% p.a; 6.39% p.a. and 7% p.a. 7% per annum can be achieved by investing in their most recently approved loan, BurningNight Ltd.
Innovative Finance ISA
There has been, and still is, a long and drawn-out backlog of P2P platforms seeking permissions to offer the Innovative Finance ISA. Crowdstacker has beaten almost all to the punch and can serve investors with this tax-efficient ISA, sheltering interest earned on a Crowdstacker investment from tax.
The Crowdstacker Innovative Finance ISA (IFISA)
Crowdstacker has beaten all other P2P platforms, including RateSetter, Zopa and Funding Circle to offer the Innovative Finance ISA, meaning you can hold a Crowdstacker investment in their IFISA and receive interest on the investment tax-free!
Rather than launch under interim permissions, Crowdstacker applied for direct authorisation from the FCA from the outset, meaning all technology and processes were in place prior to trading. This has paid dividends as it was the first, and one of few, P2P platforms able to offer an Innovative Finance ISA, as of April 2016.
Karteek Patel, CEO of Crowdstacker told Orca Money:
Almost 50% of funds lent have come from IFISAs and this continues to grow, mostly because the types of businesses and the amount of information we offer, potentially, is more suitable to someone looking at their ISA because they can look in-depth at a potential investment.
The Crowdstacker platform offers loans to businesses that are potentially larger in size than what you might find on
other P2P business loan platforms. Lending to larger, more established businesses may reduce the risk of borrower default, but as an investor you still need to conduct due diligence on the businesses and weigh up the benefits vs risks. The Crowdstacker platform has been designed for the everyday investor, they offer detailed information on each borrower and display the information in a clear and simple way without complicated jargon. Benefits and risks are highlighted in each and every case. Crowdstacker encourages people to look at peer-to-peer lending as part of a diversified portfolio. This further mitigates risk of a default affecting your portfolio.