P2P lending for the traditional investors
P2P business lending helps both individual and corporate investors lend to small and medium-sized businesses. Access to this alternative finance is achieved by borrowers entering their information into an online application portal, where they benefit from rapid loan approval. Put simply, a P2P lending platform perfectly matches borrowers with their investors.
Importantly for investors, P2P lending is an alternative asset class, providing diversity across your balanced investment portfolio and choice around how you wish to invest. This might be in a single loan or partial investments across multiple loans. You can also choose to lend in specific areas, for example, small business loans to help companies with new strategies and initiatives.
Alternative lending through P2P platforms offers you, the investor, the opportunity to secure higher returns, and loans are repaid with monthly interest. Naturally, higher returns are often associated with increased risk. Therefore you may choose to invest just a small proportion of your portfolio into P2P lending. However, P2P lending platforms are undoubtedly transforming the lending industry and should be considered as part of your investment strategy.
The Huddle platform
The P2P lending market has grown rapidly and continues to expand in the UK. It has risen from zero (10 years ago) to an investment level of more than £8.7 billion. (www.ftadviser.com).
With many different choices available, it can be difficult to decide on the best partner. Added to this your need to decide if you wish to lend to businesses or consumers and every type of loan to be financed brings its own risks and benefits. However, as with any asset investment area, it is vital that you understand all aspects when choosing your P2P platform.
Huddle Capital launched at the Master Investor Show in March 2017, into what was already a competitive P2P marketplace. However, in a very short space of time, we have secured both reputation and trust in our approach to P2P lending. To back this up, Huddle attracted more than 100 investors to our platform within 30 days of its launch. As many investors are not yet completely familiar with P2P lending, rather than advertising, we believe in providing thought-leadership and education, to grow our investor and borrower community, where ideas and experience can be shared.
Why choose Huddle and P2P lending?
There is a compelling argument to place some of your investment assets outside the FTSE 100. To explain, on average, financial experts have advised that as an asset class, shares generate returns of between 8-10% per year for a long-term investment. Indeed, from a low last February, the FTSE 100 index was up 33% by January 2017 (11 February – mid-January 2017). And, including dividends, the index returned 37%. In 2016 alone, the FTSE 100 gained 14%, the largest increase since 2009 when the index climbed by 22%.
However, over the past decade, the FTSE 100 has not generated anywhere near this level of return. Of course, there have been dramatic changes from an all-time market high to a Global Financial crisis, but if you are relying on a target of 8-10% per year, you may not achieve it.
In fact, over the past ten years, the FTSE 100 has been a serious underachiever, with just 1.5% per year on a capital appreciation basis, and 5.4% with dividends reinvested. In contrast, the mid-cap FTSE 250 index returned 4.5% per year on a capital appreciation basis and 7.9% with dividends. In the past, investing in stock markets offered an opportunity for diversification. However, as stock markets continue to move closer together, the opportunities for investors to realise true diversification have reduced.
It is a golden rule of investment to have some of your assets uncorrelated with the stock market, thereby reducing volatility and risk. So, as an alternative to stock market investment, lending through P2P platforms such as Huddle is an option. Although there is the possibility of arrears with any lending situation, the P2P marketplace overall remains robust with bad debts at 2-3% over the past 6-12 months. At Huddle, we certainly place a firm focus on our own risk reduction strategy.
What return can you expect?
On average, P2P lenders in the marketplace offer returns of 4.4% on three-year fixed-rate accounts (Guardian Money). However, past loans from Huddle have provided returns of between 12-16% for our investors (excluding bad debts).
Other advantages of considering P2P lending to balance your investment portfolio is that you will not incur capital gains tax unless you sell your loan for profit. And even then, capital gains tax will not apply until you have exhausted your capital gains tax threshold of £10,000 across all your investments. Investors may also qualify to invest their ISA in P2P lending. Called Innovative Finance ISAs or IFISAs, these offer tax-free, high-interest yields with the appropriate risks attached. Of course, it is important to accurately assess your personal tax situation and more advice can be found on the gov.uk website.
Whatever you decide, P2P lending is breaking down financial borders. It has arisen from changing business, technology, and social trends. As an investor, you can enjoy returns that are several percentage points above other investment assets, experience a true sense of community and be aware of who you are lending to. So, why not join our Huddle?