Stuart Lunn, chief executive and co-founder of LendingCrowd, explains why investors are flocking towards the peer-to-peer business lender’s Innovative Finance ISA
“IT’S AN exciting time for us,” asserts Stuart Lunn, chief executive and co-founder of peer-to-peer business lender LendingCrowd.
“There’s been a lot of focus on the ‘big three’ lenders over the last couple of years, but now there are other platforms breaking through and being recognised as significant lending platforms.
“We very much see ourselves as having the opportunity to grow significantly and become one of those key players.”
Edinburgh-based LendingCrowd has already seen dramatic growth, increasing its annual lending from £2.5m to £16m over just two years. This year Lunn has aspirations to lend out as much as £40m.
This is set to benefit retail investors, who will be able to enjoy an increasingly ample selection of business lending opportunities through the platform.
“We don’t have any institutional funding, other than an agreement with Scottish Enterprise,” Lunn explains. “We’re very much a peer-to-peer platform. Our level of growth this year will be determined by how much ISA money we attract.”
Indeed, the Innovative Finance ISA (IFISA), which gives retail investors the added benefit of tax-free earnings on their P2P investments, is pivotal to the growth of LendingCrowd and the wider P2P industry.
LendingCrowd launched its IFISA in February 2017 as a passive Growth ISA, meaning that money is auto-invested across a range of loans, with capital and interest reinvested.
In May it launched its Self Select ISA, enabling active investment portfolios to be held within the tax-free wrapper as well. The passive product, which offers target returns of six per cent, is increasingly overtaking the active option in popularity, Lunn reveals, as investors are attracted to the ease and diversification it offers.
“It doesn’t matter what the underlying product is, diversification is crucial in terms of protecting yourself against the downside,” explains Lunn.
“The passive product aims to ensure that investors remain diversified, so it reinvests on their behalf each month into new loans if they’re available and tops up existing loans. The number-one aim is to continue to grow the portfolio.”
As well as choosing between active and passive products, LendingCrowd investors will now be able to choose between the growth product and the new income product, which are both available within the IFISA wrapper.
Launched last month in response to investor demand, the income account reinvests the capital component of the repayment but allows investors to withdraw the interest, with target returns of 5.6 per cent.
As well as enjoying enviably high returns in a low-interest-rate environment, LendingCrowd investors can be assured that the businesses they lend to have been through rigorous credit checks.
“We have a traditional credit-assessment approach, with a team that really understands SMEs and how to price risk,” Lunn says.
“That should be a significant tick in the box for investors, that we’re not relying on parameter-driven, black-box algorithms.”
With an alluring combination of bumper returns and robust credit risk assessment, it’s no surprise that investors have been attracted to the platform. So what’s next for LendingCrowd?
“The signs are very positive, both for us and the sector in general,” Lunn affirms.
“There’s a lot of appetite out there. One of the key factors over the next couple of years will be the attitude of intermediaries such as financial advisers towards the sector.
“More has to be done on a sector-wide basis to clarify risk-return profiles, but an increasing number
of individuals are looking at IFISAs so financial advisers will have to sit up and take notice.”
Click here for more information on LendingCrowd.