If you are looking for a no hassle income investment, wrapped up in a tax-efficient Innovative Finance ISA (IFISA), investing through the Crowdstacker peer-to-peer lending (P2P) platform may be a good option.
Crowdstacker facilitates P2P arrangements between lenders/investors and businesses wanting to borrow money. Typically, the loan size required by borrowers on the Crowdstacker platform is greater than that of other P2P platforms focused on small to medium sized (SME) business lending. For example, Crowdstacker loans can be as large as £50 million, while Funding Circle, the largest P2P business loan platform, has a maximum loan size of £1 million. As the businesses borrowing money on Crowdstacker are typically larger, there is an argument to say that the risk of default is reduced by lending through Crowdstacker. This hypothesis assumes that smaller, less established businesses are more volatile and therefore riskier to lend to.
The Crowdstacker Investment Process
The Crowdstacker investment process is simple:
- Crowdstacker presents businesses who want to borrower money to investors. They call this their ‘stack’.
- As an investor, you manually select the businesses you want to lend to from the Crowdstacker stack.
- You earn interest every quarter and you receive your capital at the end of the loan term.
Businesses listed on Crowdstacker have a total target fundraise, broken down into monthly tranches. The closing dates of these tranches listed on the Crowdstacker platform are important as you will start earning interest on your investment seven days after the closing date. Investment tranches will be issued each month until the total fundraise has been reached.
Currently, on the Crowdstacker stack there are two businesses wanting to borrower money ‘Amicus Plc’ and the ‘Quanta Group’.
Amicus Plc. Loan
Figure 1: Amicus Loan Statistics
Amicus are a short term property lending business. You lend your money to Amicus through Crowdstacker and Amicus lend on a short- term basis to property developers, landlords and property professionals. These loans are known as bridging loans.
The Quanta Group Loan
Figure 2: Quanta Loan Statistics
Your loan allows the Quanta group to purchase residential properties, refurbish the properties if necessary and sell on within a targeted five-month period. The Quanta group target buying properties at 85% the market value. This type of business activity is known as property flipping.
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What are the risks?
Double Credit Risk (Amicus only): Amicus is a lending business. Therefore, there is a risk around Crowdstacker’s credit scoring on Amicus and Amicus’s credit scoring on the businesses which it lends to.
Transparency: In comparison to mainstream peer-to-peer lending platforms, such as Zopa and RateSetter, there is little transparency on the Crowdstacker platform. Neither Quanta or Amicus’s company accounts are listed
on Crowdstacker and it is difficult to gauge the performance of either business. Key statistics like the average lending rate and default rates of Amicus’s lending operation would allow for the opportunity to be better evaluated.
Diversification: As an investor, you are required to manually select the businesses you are lending to. With only two businesses listed on the Crowdstacker platform, there is little opportunity to diversify your funds. That being said, lending to one or both businesses as part of a larger portfolio may be a good strategy.
Property Market Risk: Whether you choose to lend your money to the Quanta Group or Amicus Plc, there is risk related to the property market. If house prices drop the ability of both the Quanta Group and Amicus Plc. to repay your loans would be affected.
Liquidity Risk: Once your funds are out on loan (past the closing date), you will not be able to access your money before the end of the term. There is a match bargaining system on the Crowdstacker platform which allows lenders to transfer their loans to other lenders. A £15 fee applies and there is no guarantee a transfer will occur.
The Crowdstacker Innovative Finance ISA (IFISA)
Crowdstacker has beaten all other P2P platforms, including RateSetter, Zopa and Funding Circle to offer the Innovative Finance ISA. The question amongst investors and industry players is how did Crowdstacker gain the necessary approvals to be the first to offer the Innovative Finance ISA?
To answer this question, it’s important to understand what regulatory requirements are required to offer an Innovative Finance ISA (IFISA). P2P platforms must be fully authorised and regulated by the FCA and be approved by the HMRC as ISA Plan Managers. The HMRC approval is relatively straight forward and we’ve been told this takes a matter of weeks to gain. It is the full FCA approval that has been the stumbling block for most P2P platforms. The FCA currently has a backlog of P2P platforms waiting to be fully authorised and sensibly they are not rushing approvals through there due diligence process.
Crowdstacker gained full FCA permissions in June 2015, ahead of all other platforms. They have done exceedingly well to priorities FCA approval, enabling them to offer the Innovative Finance ISA from the 6th of April 2016.
Mark Bristow COO of Crowdstacker told Orca Money:
We wrote our internal polices with the ethos of putting investors at the heart of our business. This is what the FCA are looking for.
Conclusion
The Crowdstacker platform offers loans to businesses that are potentially larger in size than what you might find on
other P2P business loan platforms. Lending to larger businesses may reduce the risk of borrower default, however, as an investor you still need to conduct the relevant due diligence on the businesses.
On a personal note, we’ve gotten to know the people behind Crowdstacker and they genuinely seem a decent group of people who care about their investors. Investing solely in Crowdstacker would be foolish but holding an investment in Crowdstacker as part of a larger portfolio may be a good option, particularly for those wanting to open an Innovative Finance ISA.
Visit the Crowdstacker site to learn more:
