Small businesses are the lifeblood of the UK economy.
In fact, small- and medium-sized enterprises (SMEs) account for 99.9 per cent of all businesses in the UK, three fifths of the employment and around half of turnover in the UK private sector, according to statistics from the Federation of Small Businesses.
And thanks to peer-to-peer lending, investors can support the UK economy while enjoying bumper tax-free returns.
Read more: IFISA Guide
We have found seven Innovative Finance ISAs (IFISAs) which enable investors to enjoy solid returns while supporting the nation’s entrepreneurs. Minimum investments can begin as low as £10, while the return rates for investors range between four and 16 per cent.
An IFISA is a tax-free wrapper that allows UK investors to lend money through Financial Conduct Authority-authorised P2P lending platforms. They can receive interest and capital gains tax free, up to the current annual ISA limit of £20,000.
Here are the IFISAs that back British businesses.
Crowd2Fund
Crowd2Fund positions itself as a community that enables investors to connect with entrepreneurs. Investors can enjoy discounted products from some of the companies fundraising on the platform, such as ski brand Planks Clothing. Crowd2Fund saw investors deposit £2.2m of additional capital on the platform last year.
These funds helped 60 entrepreneurs raise funds in 2022, meaning that Crowd2Fund has helped to support 700 British businesses since it was founded in 2014. There is a minimum investment of £100 and the platform offers target returns of between eight and 15 per cent.
Crowdstacker
Crowdstacker lends to businesses across a variety of sectors, including property, healthcare, SME lending and asset leasing. Investors can choose which businesses they fund, according to their risk appetite. There are no fees and a minimum investment of just £100, with target returns of between four and 7.25 per cent.
The company narrowed its losses and grew its revenue last year, despite “an uncertain economic climate”, according to chief executive Karteek Patel. He said that the platform has begun offering a wider selection of slightly smaller investments and has “a healthy pipeline developing”.
Folk2Folk
Folk2Folk is the UK’s largest P2P lender after Assetz Capital exited the retail space, and recently increased its interest rates in a bid to woo investors from its former rival. It won the highly coveted P2P Lending Platform of the Year and Business Lender of the Year accolades at the Peer2Peer Finance Awards 2022.
All business loans are secured by land or property, with target returns now ranging between 7.5 per cent and 9.5 per cent. Folk2Folk is targeting the wealthier investor, with a minimum investment of £20,000.
Money&Co
Money&Co has moved into the specialist business lending niches of music finance and litigation finance and is thought to be mulling a move into agricultural loans and a crypto-related product. The platform, run by ‘City superwoman’ Nicola Horlick, has a minimum IFISA investment of £1,000 and target returns of up to seven per cent.
Rebuildingsociety
Rebuildingsociety facilitates both secured and unsecured loans to UK businesses who need funding for growth, cashflow, debt consolidation and more. The Leeds-based firm offers an IFISA with a minimum investment of £10 and target returns are up to 6.1 per cent.
Rockpool Investments
Rockpool focuses on profitable and growing companies that are still under the radar of mainstream private equity funds. It has a higher minimum investment than many of the IFISAs on this list – at £10,000, but offers attractive target returns of up to 12 per cent.
Rockpool says that its specialist team source prime lending opportunities from well-managed private companies requiring loans ranging between £2m and £10m. Borrowers are required to show annual profits of at least two times their interest outgoings and have a strong capital base or be able to provide significant alternative security.
ShareCredit
Unlike the other IFISA providers in this list, ShareCredit is open to international borrowers and investors, so you can back British businesses and those overseas. The company says its mission is to give investors and borrowers access to competitive interest rates to help them reach their financial goals.
It is run by an international team who built ShareCredit to remove the challenges that international investors and borrowers can face. Its IFISA has a minimum investment of £10 and target returns of up to 16 per cent.
“The small investor can support the UK economy and help British and Northern Irish companies grow, all while enjoying large, tax-free income on their investments,” said Neil Faulkner of P2P research and ratings firm 4th Way. “Lending through a blend of IFISAs like this has historically provided highly stable returns, even in downturns.”
That contrasts well with the stock market, he added.
“The differences are that, as a lender not a share owner, you have priority of repayment in rocky times, and it is relatively easy to price loans correctly versus assessing a fair price for shares,” Faulkner said.
