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Innovative Finance ISAs (IF-ISAs) are investments that allow consumers to lend and earn tax-free interest through a Peer to Peer lending platform. Innovative Finance ISAs pair up willing lenders (or investors) with individual and business borrowers through an easy-to-use online platform.

No. In order for your loan to be in your ISA tax wrapper, it must not be to a ‘connected party’. As such, this product involves reciprocal loans. You will make a loan to another company, and another lender will make a loan on the same terms to your company.

The reciprocal aspect of this product refers to two separate but connected loans. In this case, it is the ‘pair’ of loans formed between two lenders and two borrowers. One lender makes a loan to another borrower’s company, while a second lender makes a loan on identical terms to the first lender’s company. Both loans are ‘reciprocal’ because they are for the same amount, at the same interest rate and on the same commercial terms.

If your loan defaults, the Buy Back Guarantee can be triggered. The Buy Back Guarantee is a contractual mechanism that facilitates reassignment of loans in certain circumstances. Your defaulted loan to their company will be swapped for their performing loan to your company. You will then be matched with another borrower so that you can continue to receive interest repayments into your ISA account. Whilst this feature reassigns the loans, please note that this feature is not insurance, and does not remove the risk of capital loss or platform failure.

Each repayment will be held in our segregated client account and assigned to your available balance. It is up to you whether you want to withdraw it each month or compound it by entering into new agreements. You will not earn interest on funds held in the client account.

Our standard loan agreement for this product is subject to platform terms and applicable regulation for it to run. If either the borrower or the lender wants to arrange repayment and redemption, they can do so whenever suits them. We use the Buy Back Guarantee to help to facilitate this.

Whilst this product does confer a potential saving on income tax and corporation tax, the tax saving cannot be the main purpose or one of the main purposes for you to use the product. To be compliant with HMRC’s guidelines, there must be a genuine commercial need for the loan and the potential personal tax saving cannot be the main motivation for entering into the transaction. To prevent abuse, the loan must also be made on genuine commercial terms.

During the loan application and completion process, we will ask you to tell us what your business will use the loan proceeds for. We will then ask you to provide evidence of the commercial need for the loan based on what the funds will be used for. For example, if the funds are sought to assist with working capital or cashflow, then we will ask you to provide a business bank statement to demonstrate that the business does not already have considerable cash reserves. If the funds will be used to purchase a property or other asset, then we will ask you to provide details of that asset in the form of a listing, brochure, invoice or make and model number. This information will be securely stored and will be available as an audit trail to help you log and demonstrate the business’ commercial need for the loan.

During the application process, we will assign your business an indicative risk rating based on credit risk indicators and credit scores. This risk rating will be used to set the maximum interest rate that you can lend at, which is the same maximum interest rate for the equivalent risk rating used for the rest of our loan book. Your loan will have the same maximum interest rate as a public loan arranged through the platform of the same risk rating.

You are free to choose the rate you wish to lend at, however you cannot lend at a rate higher than the maximum rate for the risk rating that your business has been assigned.

For C rated businesses, the maximum rate is 20%. For B rated businesses, the maximum rate is 17%. For A risk rated businesses, the maximum rate is 14%. For A+ rated businesses, the maximum rate is 11%. As mentioned above, you can lend at any rate of your choosing up to the maximum rate for the risk rating that your business has been assigned.

We do this through the reciprocal loan structure, which means that you lend to another unconnected company, and another lender lends to your company on the same terms. Both loans are covered by the ‘Buy Back Guarantee’ which is triggered if either loan stops performing or defaults.

Yes. Your company can repay any loans they have taken using this product whenever they would like. If you notify us of your company’s intention to repay, we will trigger the Buy Back Guarantee. Your company can then process the redemption payment into our client account, and it will be distributed to your lending account.

Thanks to the Buy Back Guarantee, we are able to manage this situation and minimise disruption. If the lender wants their loan to end, then we will trigger the Buy Back Guarantee to end the reciprocal arrangement. Your company (and you) will be entered into a new reciprocal arrangement with another lender, and your company aims to allow the loan to continue uninterrupted throughout this process.

If you tell us that you want to end your loan or repay some capital, we can trigger the Buy Back Guarantee. Your company can then repay some or all of the loan, which will be distributed to your lending account. From there, you can withdraw the capital, enter into another reciprocal loan at a future date, or transfer the balance to another ISA provider.

Similar to the above, this can be facilitated by triggering the Buy Back Guarantee and setting up a reciprocal arrangement with another lender so as to not disrupt the normal monthly repayment schedule of the loan.