Crowdfunding And Peer-To-Peer For SIPP And SSAS
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We're delighted to present an article written by Angus Dent, the CEO of ArchOver, a crowdlending platform that insists all its borrowers take out credit insurance to protect its lenders
Investor security is what defines us, and that ethos runs through everything we do.
We are globally unique amongst peer-to-peer business lenders in that we use insurance to provide unparalleled investor protection.
Angus Dent, CEO, ArchOver
ArchOver Specialises In Insurance-Protected Crowdlending
Ten years on from the creation of the world’s first peer-to-peer lending platform, the alternative finance sector’s stupendous rate of growth has rendered it unrecognisable. This has been a decade in which cumulative funding by UK platforms has risen from under £50,000 to almost £3.4 billion, driven by a proliferation in the number of platforms in existence as well as in the scope of their models and products.
This growth has been fantastic for our industry, but it has also led to much greater complexity in the marketplace, with the numerous products now on offer carrying different rates of risk and return.
How A SIPP Holder Should Approach This Exciting Investment Class
In my opinion, the answer is to diversify your investments.
This could mean spreading your investments across different platforms, products and risk-grades. A well-constructed diversified portfolio should grant good exposure to this exciting sector, whilst simultaneously mitigating the risk to the investor. For example, you might look to higher grade business loans and loans secured against property as the low-risk bedrock of your portfolio. The next risk band might contain medium-grade business loans as well as loans facilitated by foreign platforms, which whilst achieving geographic distribution could also bring in the risk of currency fluctuation. Finally, the highest risk section of your portfolio could be composed of equity crowdfunding propositions, which carry the greatest potential rewards of all but also a significant risk of failure.
Here at ArchOver, we offer loans with competitive rates of 5.5 to 7.25 per cent that sit within the low-risk band of an investment portfolio. Named for our ability to bypass the banks, ArchOver approaches lending in a very different way to our competitors. We facilitate loans only to good businesses that have been trading for at least two years and that have turnover above £1.2m.
We Are Globally Unique Amongst Peer-To-Peer Business Lenders In That We Use Insurance To Provide Unparalleled Investor Protection
We have all our borrowers take out credit insurance with AA+ rated insurance firms over their Accounts Receivables – the money owed to the borrowers by their customers for goods and services that have been delivered. It is then required that our borrowers hold their Accounts Receivable at 125 per cent of the loan value for the duration of the loan to maintain our security. If a borrower’s customer pays late or doesn’t pay at all, the insurance company pays out to our investors. So what the credit insurance wrapper achieves is the transfer of risk from our investors to the credit insurer.
In addition, we also secure a “first floating charge” on each borrower’s Accounts Receivable. This means that if a borrower defaults, we can collect the Accounts Receivable to pay back our investors.
We call this Secured And Insured lending, and it’s proving very popular with our institutional investors.
I strongly suggest you consider it for your SIPP.
Visit ArchOver And See "Secured And Insured" Lending In Action
You can find out more about ArchOver from its website.
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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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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.