Peer to Peer Lending (P2P)

Peer to Peer lending or P2P as it is more commonly known is a platform for businesses to borrow money from a collective group of unrelated individuals who bid on a reverse auction basis to win the chance to lend a portion of the funds required. P2P uses modern technology to operate a credit marketplace at a lower cost than traditional bank loan programs. Credit can be provided for almost any purpose with rates set at the end of the auction process. The time it takes to raise the funds varies and is dependent along with the interest rate charged on a number of factors which include but are not limited to the risk, amount, term and unsecured/secured nature of the borrowing. Most sectors, business profiles and loan purposes are eligible for this type of funding. However, a business would generally need to have a realistic track record and have traded for at least two years with most P2P platforms concentrating their focus on lending to business with growth aspirations.

Key Considerations are:

• Loan purpose: Asset loan or asset purchase
• Loan amount: Up to £10,000 per asset. Up to £350,000 plus per transaction
• Loan term: From 12 months, up to 5 years (60 months)
• Loan details: Fixed Secured and Unsecured lending 
• Loan to Collateral: The business needs to have at least a two-year trading record; Businesses that have been through challenging times but are now seeking to expand

Pension-led Business Funding (PLF)

There is a very large amount of money in the UK pension system around £2 trillion. In fact a significant proportion of this (around £200bn) belongs to business owners. Pension-led business funding offers a sophisticated alternative financing scheme involving business owners’ accrued pension benefits, held within a director-owned pension scheme, allowing them to deploy some of their pension into their business to support its growth and help realise its potential.

The two-main pension-led funding vehicles are Self-Invested Personal Pensions (SIPP) and Small Self-Administered Schemes (SSAS). Both are pensions that allow the owner to make decisions as to where their money is going to be invested. The main funding options are a commercial loan from the pension scheme to the sponsoring limited company secured on an asset of equal or greater value than the loan and total interest repayments due, or following clarification in the Finance Act 2004, intellectual property (IP) is an HMRC recognised asset class for pension-led business funding. The most common IP assets are patents, trademarks, designs, copyrights, databases and domain names.

When considering a SSAS loan to the business, the main regulatory requirements are:

• Loan Purpose: Asset Purchase or Loan Secured on Intellectual Property (IP)
• Loan amount: A pension pot of more than £50,000.00 is required to make the process viable
• Loan term: Up to 5 years (60 months) It must be repaid with equal instalments of capital and interest throughout the term
• Loan details: Loan purpose: It must not exceed 50% of the pension fund’s net asset value
• Loan to Collateral: Pension Fund can create its own first charge over all assets of equal or greater value to the loan capital, plus interest over the period of the loan. The pension scheme becomes a preferential creditor to the business

PLF remains the only form of funding where the business owner personally profits from the financing arrangment – the interest on the funding being pack into the pension scheme, rather than to a third-party. The PLF doesn’t rely on other forms of security often required by lenders, such as personal guarantees and charges over domestic policy.

Crowdfunding

Crowdfunding is the new on-line platform process of various Investors investing capital into a singular business entity to support a specific project such as a new product launch or a strategic venture. Crowdfunding platforms allow you to market your project, generate interest, and receive the funding you require. In return, the Investors are either given equity in the form of Shares in the Company or in exchange for financial return and/or interest at a future date. It works by creating a pitch, setting out the reasons they are seeking the investment. As part of this process, you must decide the minimum and maximum funding target you require to raise and openly stipulate the price of the shares and the interest rate offered to investors. The Company is given 90 days to complete the raising of funds. If they are not successful, any Committed Funds collected will be returned.

To find out how Advance Finance & Leasing could find alternative ways to funding your business, please get in touch at enquiries@advanceleasing.co.uk