Ultimate guide to Innovative Finance ISAs: Part two
INVESTORS looking to enjoy tax-free income from peer-to-peer investments might want to check out this season’s range of business-focused Innovative Finance ISAs (IFISAs).
Lending to small- and medium-sized enterprises (SMEs) has soared in recent years. Members of the Peer-to-Peer Finance Association have cumulatively lent a total of £5bn to businesses versus £3bn to individuals, as of the end of 2017.
Loans to SMEs tend to produce a higher rate of return than loans to consumers, but they can also be riskier in some cases. The average size of loan is also much higher.
There are more than 10 IFISAs on the market focusing on lending to businesses, compared with three that focus on consumer lending. You can read more about the consumer lending propositions here.
This is our first round-up of some of the SME-focused IFISAs available – look out our next selection of products offered by P2P business lenders later this week.
Ablrate
Ablrate’s IFISA enables investors to choose which businesses they lend to from those that have listed a borrowing request. The average returns experienced by lenders are between 10 and 15 per cent. Some loans let investors earn returns immediately.
Ablrate recently introduced “portfolio loans” for loans that do not suit the self-select product. Single company portfolio loans are to companies that want to increase and decrease the amount they borrow as and when they can provide security or pay back the loans. Diversified portfolio loans could be to a range of companies requiring smaller loans (under £100,000) or where the borrower does not want to release commercially-sensitive information.
The IFISA is flexible, enabling investors to withdraw funds and deposit them back in the same tax year without it affecting their allowance.
Crowdstacker
Crowdstacker’s IFISA lets investors choose which business(es) they want to lend to from those available on the platform. The business(es) pay an agreed rate of interest at a specified frequency throughout the term. Rates are typically between five and seven per cent a year. At the time of writing, investments are available into loans to Rivers Leasing, Krinvest Care and Authentic Alehouses.
Funding Circle
Funding Circle’s IFISA is currently open to existing investors only. There are two lending options to choose from: Balanced, which has a projected return of 7.2 per cent, lends to the full range of businesses on the platform; Conservative, which has a projected return of 4.8 per cent, lends to businesses that have been assessed as lower risk.
The minimum investment in this flexible IFISA is £1,000.
LendingCrowd
LendingCrowd offers three IFISA products: the Growth ISA, the Income ISA and the Self Select ISA.
The Growth and Income ISAs automatically spread an investor’s money across lots of loans. They have variable target rates of six per cent and 5.6 per cent, respectively. The recently-launched Income ISA pays interest payments into a separate account to be withdrawn. The minimum investment for both products is £1,000.
The Self Select ISA lets investors choose the loans they want to invest in. Rates start from 5.95 per cent depending on the credit band of the loan. The minimum investment is £20.
Look out for our upcoming coverage of more business-focused IFISAs and property IFISAs.