There are an increasing number of crowd bonds available that give individual investors the opportunity to lend to companies over a fixed-term period, often earning an attractive rate of interest until the loan is repaid.
Crowd bonds look to attract large numbers of small investors for a variety of projects, particularly in the green and ethical investment space; the minimum investment can be as low as £100, and some are eligible to be held within an Innovative Finance ISA (IFISA) wrapper, enabling investors to enjoy tax-free earnings on their income.
Crowd bonds tend to be larger than peer-to-peer loans, which can make it harder for investors to diversify and spread their risk and as with any investment product they are not without risk.
attract large numbers of small investors for a variety of projects, particularly in the green and ethical investment space
P2P Finance News recently looked at some of the crowd bond investments available on the market.
Ethical bank Triodos launched its own crowd bond platform earlier this year, named Triodos Crowdfunding which looks at investment opportunities with companies that seek to make a positive impact.
It offers green investments as bonds, all of which can be sheltered within an IFISA wrapper; projects have ranged from solar schemes, to heat pump installations, to wind farms.
Interest rates range from 5-7% with minimum investments starting at £100; Triodos most recently launched a crowdfunded solar bond to raise £4m for a 36,000-panel solar farm in Somerset.
Investments in the community interest company Burnham and Weston Energy CIC s, which generates solar electricity income to support local projects, will return an inflation-linked interest rate of 5% p.a.
Further afield, positive investing platform Lendahand Ethex offers the opportunity to invest in African solar projects through its IFISA-eligible crowd bond.
The company teamed up with utility company BBBOX to raise £2.5m to fund solar systems across Africa; its initial bond raised £250,000 from UK investors to fund solar systems for 2,500 rural Rwandan households, by offering 5% p.a over the a three year term of the loan.
Lendahand Ethex also launched the 4% p.a. Energy Garden Community Bond to support the work of the London-wide Energy Garden initiative, which creates gardens, food-growing plots and solar energy stations on London Overground platforms; It is available to both institutional and retail investors.
Amberside Asset Lending Platform (ALP) is another P2P crowd bond platform which invests in high-yielding private debt in infrastructure projects, including solar parks, grid support facilities and hydroponics projects; ALP is a joint project between Amberside Capital and CH1 Investment Partners that offers investors 5% returns, and is IFISA elligible.
its platform invests in ‘businesses that make a difference’
Trailblazing platform Downing Crowd offers one of the widest ranges of crowd bond investment options; its platform invests in ‘businesses that make a difference’, including renewable energy, care homes, health clubs and children’s nurseries.
Downing is due to launch an opportunity to back a £1.6bn electric vehicle project aim to create a world-first 2GW network of grid-connected batteries and rapid electric vehicle (EV) charging stations across the UK.
Its asset-backed bonds are available to retail investors, IFISA eligible and offer returns from 4% – 7% p.a.
Outside of the green investment space, Crowdstacker launched its first crowd bond in September 2017, enabling investors to back property developer St Mark Homes; the 30-month bond finances residential developments, the majority of which will be eligible for the government’s Help to Buy scheme.
The bond was the first offered by Crowdstacker since it announced it would be offering more than just P2P loans; lenders are rewarded with 6% p.a. for their minimum £500 investment.
The small print
P2P Finance News highlighted the potential pitfalls of crowd bonds when it reported that energy regulator Ofgem rejected an application for subsidies on a debenture offered by crowd bond platform Abundance; investors’ capital is now at risk.
The £3.9m Monnow Valley CHP (MVCHP) facility is now listed as ‘overdue’ on its website although investors had received the 12% interest which was expected from the loan; Abundance says it is working with investors and MVCHP to appeal the decision via a statutory review, and will take the case to judicial review, if necessary.
Crowd bonds are a way for many people to invest in a company or project, usually via an online funding platform; this form of investment bridges the funding gap between smaller companies and banks and in 2017 more than £3.7bn was raised by UK businesses via crowdfunding and peer-to-peer (P2P) lending.
Crowdfunding has become increasingly popular with both investors and companies looking for capital because companies no longer have to try and get a large amount of investment from a small number of people, investors can directly access opportunities they may not have in their current portfolios.
Bonds are investments, not deposits and an investors’ capital is at risk; returns are not guaranteed and investors’ may not get back the full amount invested, with no recourse to the Financial Services Compensation Scheme (FSCS).
crowd bonds are sold through a company regulated by the City watchdog, customers have recourse to the financial ombudsman
However, because crowd bonds are sold through a company regulated by the City watchdog, customers have recourse to the financial ombudsman. This service hears complaints if you are dissatisfied after first complaining to the platform itself and can award compensation.
Some platforms offer products that spread risk across a number of loans; investors are strongly advised to spread their funds across a number of investments to diversify risk and avoid putting too much of their capital in a single bond.
The bonds are not listed, so there is no ‘secondary market’ to allow holders to buy and sell the bonds in the way that the Order Book for Retail Bonds does; they are often transferable to other members of the platform but investors should assume they will need to hold the bonds for the full term.
Whilst sharing much of their DNA with mini bonds, companies that issue crowd bonds have to undergo an annual independent audit and before investment took place which could give investors some additional comfort.
With the IFISA moving away from its mainly P2P loan roots, it seems likely that more and more people will be attracted by the interest available from green and ethical investments and the tax advantages of the IFISA.