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Commercial finance is going through a revolution at the moment. Innovation is rife and there are seemingly more ways now for brokers to help their clients raise funding than in previous years, even if the volume of cash available is similar.
Banks are not lending at pre-credit crunch volumes, driven in part by their capital adequacy requirements as revealed by Barclays’ drive to fill a £12bn hole in its balance sheet. However, there are others filling the gap – it’s just a case of keeping up.
With finance increasingly moving online, there are numerous providers taking up niches in the market and offering refined products.
Large secured loans, property-backed loans, invoice finance, equity crowdfunding and unsecured loans to name a few.
If you’ve got a lump sum of cash that you’re relying on to earn a passive income from, the last few years will have been difficult. Traditional products like ISAs, bonds and pensions have dramatically underperformed as interest rates have been held at the record low.
Savvy investors are increasingly looking at alternatives, rather than settling for an inferior lifestyle.
Buy-to-let has seen a resurgence in popularity. The increase in mortgage funding through Government schemes has fueled growth here and the tangible appeal of a buy-to-let investment will probably never go away. However, it can involve quite a lot of work to get right, or the investor has to take a haircut on returns and pass responsibility for managing the property to an agent.
Lending to creditworthy UK businesses is a reliable way to earn a passive income from large amount of money, and a credible alternative to traditional savings and investment products.
This example looks at an ISA paying 2.2%, peer-to-peer lending with our competitors and the current gross return of 15.4% available on rebuildingsociety.com.
Recently, an investor with a fixed term bond due to expire shortly enquired about possible returns from £100,000 through rebuildingsociety.com. If the investor had lent a proportionate amount to each business on rebuildingsociety.com at the average rate, £100,000 would return £15,400 gross per annum, versus an ISA returning £2,200 and another peer-to-peer lender’s one year bond rates of 3.10%, equating to £3,100.
rebuildingsociety.com’s rates are currently the best available in this burgeoning market. Investors are earning a gross return of 15.4%, with no management fees deducted either.
Of course, there are tax advantages to ISAs, with tax-free saving up to £5,760 as cash and the same again in an investment ISA. With rebuildingsociety.com lenders must declare income tax at the relevant bracket.
Defaults must also be taken into account to deliver a net return – at present rebuildingsociety.com has a 100% performing loan book and we estimate long-term defaults to follow the industry average, currently 1-4% dependent on the class of assets invested in.
| Platform | Headline rate |
| rebuildingsociety.com | 15.4% |
| Funding Circle | 8.91%[1] |
| Assetz | 12.7%[2] |
| ThinCats | 10.14%[3] |
| Ratesetter | 3.10%[4] |
*Based on one year returns before tax and defaults. rebuildingsociety.com does not charge an account management fee.
Lender A has lent over £500,000 through rebuildingsociety.com. Spreading his investments over 25 companies, he has earned an average return of 14.86%, reinvesting interest and capital payments as they come in.
To supplement interest payments and further spread risk, Lender A has also managed to sell a number of loans to new investors through rebuildingsociety.com’s micro loan market and reinvest this cash.
In the 11 months Lender A has been with rebuildingsociety.com, he has earned a total of £34,500. As this capital has been spread out throughout the year, returns will steadily increase on the rest of the capital invested as interest repayments are made.