Crowdfunding And Peer-To-Peer For SIPP And SSAS
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We're delighted to present an article written by Sophie Koenig, Content Marketing Executive at Funding Knight, on what to look for in a peer-to-peer lender
With backing from government and regulators, peer-to-peer lending is looking increasingly attractive to investors.
Sophie Koenig, Content Marketing Executive at Funding Knight
What To Look For In A Peer-To-Peer Lender
In 2015, peer-to-peer lenders and peer-to-business lenders provided over £2.5 billion of finance to UK consumers, businesses and property professionals. With backing from government and regulators, it’s looking increasingly attractive to investors. There are over a hundred platforms to choose from, although not all of them are approved to accept SIPP money, so here are some things you might want to think about.
Platforms tend to have specialisms: lending to consumers, or businesses, or property developments, for example, the security required, or even the risk profile they target. The repayment structure will vary between loan types: for example, business and consumer loans are often repaid on an amortising basis, while loans for property purposes may be interest-only or roll-up.
The way you invest will be different from platform to platform too. For business loans, it’s more usual to have access to more detailed borrower information and the ability to choose on a case by case basis, whereas for consumer loans it’s common for your money to be allocated across similar loans on your behalf.
Some platforms offer “provision funds” to protect against loss. The flip side is a reduced rate of return, and the fund is not quite the same as insurance, but it does offer additional peace of mind if you are particularly risk-averse.
Access To The Cash
Your investments are loans made directly to borrowers, so there isn’t an automatic mechanism for you to be able to access that money. Look for platforms with “secondary marketplaces” where you can sell your holding to other investors.
Secondary marketplaces are also a great way to buy into multiple loans instantly, to minimise your exposure while you’re getting set up.
Buying and selling is on a matched basis and not guaranteed so make sure the marketplace is active, and make sure you’re aware of any fees.
You probably don’t want to be manually managing a portfolio of dozens of peer-to-peer loans on top of all your other investments. Their relatively short term and small values mean your portfolio could become skewed quite quickly.
See what tools the platform offers to help you manage this. Automatically bidding in new auctions, re-investing interest, withdrawing a set income and rebalancing are all options you may want to look out for. With SIPP money, however, you may be required to check you're not connected to the borrower, which can rule out automatic bidding on some platforms.
Duration Of Auctions
Money committed to an auction doesn’t earn interest until the money is actually transferred to the borrower. In general, the complete value of loan must be promised by the crowd before the auction can be “closed” and the money in those bids cannot be accessed while the auction is still open. At some platforms, it’s common for auctions to have to be extended. You might eventually receive a great interest rate, but take into consideration how much time your money has had to wait around to get there.
Performance data has to be taken with a generous pinch of salt: most platforms are very young and the industry has not been through a full credit cycle.
Try looking at it from another perspective. What is the experience of the credit team, what is their assessment process and how do they describe their attitude to risk? This might provide some qualitative information about whether the platform is what you’re looking for.
Check Out The Forums
The P2P Lending Forum is an independent forum for discussions around crowdlending. Many platforms have their own dedicated boards, or you can ask for general advice. Users have to declare if they work for a platform so you’ll be able to tell if you’re speaking to an employee.
Peer-To-Peer Lending On Funding Knight
Through Funding Knight's partnership with SIPPclub, you can invest your SIPP money in its business, property and green energy loans. Click the blue button below to find out more, or if you prefer, talk to Funding Knight's Head of Investor Relations, Kay Carson, on 02392 985267.Peer-To-Peer Lending On Funding Knight
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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Crowdfunding And Peer-To-Peer Risk Warning
When a platform has been assessed and approved by a SIPP or SSAS operator, this does not imply that any loan or investment opportunity is endorsed in any way. A SIPP or SSAS operator's due diligence review is limited to ensuring the processes and procedures of the platform are in line with both FCA and HMRC principles. It's entirely your responsibility for carrying out your own due diligence on any loan or investment opportunity before agreeing to lend or invest your pension money on a platform. As a SIPP or SSAS operator will continually review platforms from a regulatory perspective, it's possible for a platform to become 'unapproved' if something changes.
With peer-to-peer lending, your capital is at risk if you lend to individuals and businesses. You may lose some or all of the capital lent if the borrower defaults and is unable to meet its liabilities. Historic loan default rates are not necessarily indicative of future default rates. In addition, lending is an illiquid investment, which means you may not be able to access the capital you lend for the duration of the loan period, even if the platform offers a secondary market. Investing in any business involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdfunding is generally targeted at investors who are sufficiently sophisticated to understand the risks and make their own investment decisions, based on their knowledge, experience and financial capacity. Neither crowdfunding nor peer-to-peer lending is covered by the Financial Services Compensation Scheme. The tax treatment of your investment is dependent on your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of crowdfunding investment or peer-to-peer lending, you should consult a suitably qualified independent financial adviser.