Crowd2Fund have launched a new property loan product, secured against commercial or residential property, which qualifies for inclusion within the platform’s IFISA.
The new loan vehicle is targeted at businesses which own property, or directors who are willing to offer their property as security. Loans are between £100,000 and £1 million, typically last for a duration of three to five years and carry an estimated APR between 6 percent – 8 percent before fees and bad debts.
The only associated fee for investors is the Repayment Fee, set at 1 percent of the value of repayments, which is collected from each repayment.
What are the benefits for investors?
Diversification
The Crowd2Fund property loan is the latest addition to the range of debt products already offered by the platform. These include standard loans, revenue loans, bonds and venture debt.
The introduction of the property loan allows investors to further diversify and personalise their portfolios, according to their risk appetite and individual goals., with the option to invest as little as £100.
The property loan enhances diversification opportunities by being a comparatively lower-risk vehicle than that will accompanying the higher risk products available, such as Venture Debt.
Even though interest rates are lower with property secured investments, funds should be spread across different products and companies to help mitigate the risk of defaults.
All businesses go through a thorough due diligence procedure. Nevertheless, all campaigns on the platform carry their own, unique risk. There have been zero defaults on the platform to date.
Investors may choose to spread their investments across both secured property loans and high growth sector businesses, which carry a higher interest rate, but in which an investor might have a personal interest.
Furthermore, property loans are included within the IFISA, which has an allowance of £20,000 in the 2017/8 tax year, thus enjoying the added benefit of sheltering interest repayments from tax.
Secured against a property
All businesses running a property loan campaign are required to let Crowd2Fund take a charge over their tangible assets. The value of the secured property must cover 100 percent of the total loan value.
This means that if the business defaults on their loan, the property will be taken and sold to repay investors.
Property loans are lower risk in comparison to unsecured loans. However, it should be noted that there is a risk that the property may not retain its original valuation and that it may take time to sell it.
Simple and transparent structure
We want the concept of property loans to be simple for businesses and investors to understand.
We understand that investors may prefer to allocate their funds to a loan which is secured against bricks and mortar. The reason for this is that it is easy to understand the value of property as there is an active market in which to sell, not to mention that property belongs to an established and trusted asset class.
As with a loan, businesses repay investors interest and capital on a monthly basis. This amortises over time; this means that investors are repaid the same amount of money each month, but the interest will decrease as the principle repayment increases. For example, should a repayment be £10, £5 will be interest, £5 will be principal. A second repayment will still be £10, but the interest will reduce to, say, £4.50, and the principal will increase to £5.50, and so on with each repayment. You can understand more about amortisation here.
Investors are welcome to manage and track their property investments through their personal dashboard on Crowd2Fund.
Access your capital by selling to others on The Exchange
Property loans can be bought and sold on the Exchange. Selling your property loan means investors are able to access their capital by selling it to others.
This makes investors’ investments more liquid, whilst giving investors the opportunity to sell at marginal profits.
Additionally, utilising the Exchange will give investors further opportunity to diversify their portfolios by purchasing additional loans.
Chris Hancock, Crowd2Fund CEO, explains: “The launch of our property loan gives investors access to an asset class which has performed steadily over time and is easy to understand. These asset-backed loans are likely to be popular with P2P crowdfunding investors new to the market due to the perception of them being less risky than standard loans, which do not have security taken out on them.”
The first property backed loan on the platform is set to be a £300,000 campaign for Mark Marengo, a Savile Row tailor focused on exporting sharp-cut tail