Fully fundedOne of the UK’s largest online loan providers is Funding Circle, which enables investors to lend directly to creditworthy small businesses across the UK. Since 2010, more than £4.6bn has been lent to 46,000 UK companies through the platform. The minimum investment into a Funding Circle Isa is £1,000, but you can expect yearly returns of 5.5 per cent to 6.5 per cent after fees, depending on how the loans perform. That’s still a far higher rate of interest than the average cash Isa. “Until recently, Isa holders had to make a choice between Cash Isas, or the volatility associated with investing in a Stocks and Shares Isa. The Funding Circle Isa offers a new alternative,” says James Meekings, Funding Circle’s UK managing director and co-founder. “While investors earn, the UK economy grows – creating tens of thousands of jobs and supporting communities all over the UK.”
Smell the coffee
One such community to benefit is the London borough of Waltham Forest, where coffee roasting business Perky Blenders operates several cafes. Set up by two brothers in 2015, the business raised money through Funding Circle in order to expand. “The Funding Circle loan gave us the cash injection we really needed to make sure that we could keep up with market demand, meaning we’ve now opened our fourth shop,” says Adam Cozens, co-founder of Perky Blenders. “We’ve also increased our coffee roasting by 25 per cent in the last year, helped by the move to our new roastery, which was part-funded by our loan.” Another success story is The Great Yorkshire Shop, which supports other local businesses by hand-picking and selling goods from local independent makers, artists, and designers around Yorkshire. “The Funding Circle loan allowed us to get ahead of the game and start creating our own products,” says Aneas Brewster, founder and owner of the company. “We made the decision to take our products to online marketplaces such as Ebay and Etsy, and saw our Christmas sales rise by 40 per cent.” Of course, lending money directly to small businesses means your capital is at risk because there is always a chance that companies could fail. And if a company collapsed, you would likely lose your money. To balance out this risk, most IFISA providers, including Funding Circle, spread your capital around dozens, if not hundreds of loans, so that even if one falls behind on repayments, the others will carry on paying out. Another point to bear in mind is that unlike a regular bank account, IFISAs are not covered by the Financial Services Compensation Scheme, which protects up to £85,000 of savings per person if a bank goes bust.