Chris Hancock, founder and chief executive of business lending platform Crowd2Fund, explains why the Innovative Finance ISA is going from strength to strength
Crowd2Fund is proud to have provided tens of millions of pounds in much-needed debt finance to hundreds of fast-growing small businesses here in the UK.
By connecting innovative companies with like-minded investors, we aim to enrich the experience of investing and fundraising for everyone, thus enabling businesses to grow by nurturing collaborative relationships.
A key component of our success has been the Innovative Finance ISA (IFISA). We were one of the very first platforms to become IFISA approved and have been offering the tax-free product since April 2016.
Recent data from HMRC showed that 2,000 IFISAs were opened in the last tax year, with a total of £17m invested across all providers.
Since our launch in the last quarter of 2014, more than £10m has been invested in Crowd2Fund’s IFISA, which represents a significant proportion of the entire market.
IFISA investments into the platform since January 2017 have increased exponentially, with 28.5 per cent month-on-month growth.
983 of the individuals who opened up an IFISA in the last tax year did so through Crowd2Fund. The appeal of our IFISA product is enhanced by the competitive 9.2 per cent average annual rate of return and no defaults to date.
In contrast, cash ISAs currently offer returns of around one per cent, which is likely a key factor in why millions of pounds have been transferred from existing ISAs into Crowd2Fund’s IFISA.
This trend is set to accelerate, considering that recently-released data showed cash ISA investments are falling by a third year on year.
With the big three peer-to-peer lenders not offering manual lending options, we believe that individuals are being drawn towards Crowd2Fund due to the ability to choose their investments.
People can specifically invest in businesses and sectors in which they have an interest and build a portfolio that matches their own risk appetite.
So far, 189 businesses across a diverse range of sectors including retail, clothing and manufacturing have received funding from private investors on Crowd2Fund.
Another advantage that Crowd2Fund offers is liquidity through its secondary market. The Exchange widens the choice of projects for individuals seeking to use their tax-free IFISA allowance, whilst enabling existing debt investors to sell their funds.
On the Exchange, the prices of loan parts are set by the sellers. This means that the more competitive the price is, the faster the debt is bought. Businesses which have a history of successful repayments are sometimes sold at a premium and allow sellers to bank profits.
The popularity of Crowd2Fund’s IFISA offering is growing at a rapid rate. Volumes have increased by 215 per cent in the five months to August 2017 and September was another record-breaking month.
Whilst this data is encouraging, it is just the tip of the iceberg. In 2016, the total amount of funds invested across all ISA products was £61bn, with the IFISA representing less than half a per cent of that amount.
Looking ahead, the IFISA’s popularity is like to increase across all providers, as investors realise the generous returns on offer outstrip cash ISAs and that the product is less risky than stocks and shares ISAs.
Furthermore, investors on platforms such as ours can enjoy the added benefit of supporting the economy at the same time.
By building a fairer, more accessible financial system, we aim to deliver generous returns on investments, whilst helping to strengthen the British economy from within.
For more information on Crowd2Fund and its IFISA, go to https://www.crowd2fund.com.