The Alternative Investment IFISA: Providers Who Don’t do Consumer Loans
From the moment that it was first launched, the Innovative Finance ISA (IFISA) has been synonymous with the UK’s burgeoning peer-to-peer (P2P) lending sector, and in particular, with P2P consumer loans.
When the idea of the IFISA was first mooted during the-Chancellor George Osborne’s 2015 Budget, it was pitched as a way for the average investor to make tax-free returns by investing directly in consumer loans, while also offering a more affordable alternative to payday lenders for families in need of a lifeline.
However, since then almost 100 IFISA licenses have been handed out – and not just to P2P platforms. In just a few years, the IFISA has come to represent a catch-all product which can be used to make any number of alternative investments.
Read on for some of the many ways you can use your IFISA without investing in P2P consumer loans…
1. Business loans
Most P2P platforms allow lenders to invest in small- and medium-sized (SME) businesses via the IFISA wrapper, and these investments usually come with handsome rewards. In many ways, P2P-administered commercial loans are taking the place of invoice financing and bridge loans – where a company would effectively ‘sell’ its unpaid invoices to a lending agent in order to free up quick capital.
IFISA-eligible business loans must pass a series of credit tests before they are approved for sale to the general public, and this usually means that they have to demonstrate collateral, either in the form of a building lease, machinery, or an invoice ledger.
For the businesses, these loans can help ensure their survival in an increasingly unreliable economy. And for investors, there are tax-free returns and the satisfaction of knowing that your money is supporting local businesses.
2. Property IFISA
Property P2P platforms are currently offering some of the highest returns on the market, often reaching the double-digits. And by investing via an IFISA wrapper, these returns get even more appealing.
There are a lot of different types of property IFISA. For instance, the likes of CapitalRise will only ever lend against prime central London properties which are undergoing redevelopment for resale. Meanwhile, Landbay offers inflation-beating returns to lenders who are prepared to fund buy-to-let properties, and Assetz Capital lends to residential property developments in less affluent areas such as Northern Ireland and the Midlands.
One of the great benefits of a property IFISA is the fact that there is a bricks-and-mortar building behind every loan. This means that if the borrower defaults on a payment, the property can – in theory – be repossessed and sold off to pay creditors.
Some of the first ever IFISA licenses were granted to crowdfunding platforms – not P2P lenders. According to HMRC (which grants the licenses), this was purely because the crowdfunding model is much simpler than the average P2P platform – and this is true. Crowdfunding works by asking the general public to help fund a project, in return for an equity stake of the business or a pre-agreed rate of return.
In many cases, crowdfunding investments can also be made via the EIS and SEIS schemes, which add even more tax relief to an IFISA. However, given the enormous variables between the various crowdfunded projects, would-be investors are strongly encouraged to do as much research as possible before committing their funds.
4. Green technology
Socially conscious, or ‘green’ investments are a great way to make inflation-beating returns while also doing some good for the Earth.
Currently, IFISA holders can choose from a range of different investment opportunities, from the eco-friendly energy projects offered by Abundance, to the ethically-vetted loans of the Triodos platform. Newer platforms such as ETHLend and Ethex also focus on socially-beneficial projects which fund community centres, nursing homes and public gardens, all while offering tax-free IFISA returns.
5. Crowd bonds
One year after the IFISA was rolled out, the government extended its remit to include crowd bonds. This has been hugely beneficial for a number of non-P2P companies who have built up a strong track record dealing in corporate bonds.
Crowd bonds allow investors to lend to UK businesses through fixed-term bonds which are secured against the firm’s operational assets. These bonds tend to have a relatively short-term time – sometimes as short as three months – and are used by firms which need a quick cash injection at short notice.
These investments are backed by real assets and returns can be high, depending on the nature of the loan and the maturity of the business.
Updated: Tuesday, February 5th, 2019