What Is An Innovative Finance Isa?
IFISAs have been introduced by the UK government to enable peer to peer lenders to receive tax free returns on loans. Peer to peer lending platforms enable lenders to bypass banks and lend directly to borrowers whilst also making tax free returns.
Choose Higher rates of Return For Lending Your Money
Lenders can then receive higher returns than they would otherwise have done with a traditional cash isa. So IFISA is a more innovative lending method and billions have so far been lent via peer to peer lending. Lenders can choose which types of borrower to lend to and decide the % level of return that they want. Using Peer to peer lending via an IFISA allows lenders to spread their risk by lending small amounts to lots of borrowers simultaneously.
IFISA Important financial support for SME’s
At present peer to peer lending is not covered under the Financial Services Compensation Scheme which means loans are at risk if lenders default on payments. However, since the peer to peer lending sector is fully protected by the FCA and many lenders hold a reserve fund which can assist lenders should their borrowers default, your capital is very safe. Innovative financial ISAs provide great financial support for lots of small and medium sized businesses. Businesses which may not otherwise be able to obtain finance from traditional banks are able to take advantage of paying slightly higher finance rates in order to get their loans. So, peer to peer IFISAs gives businesses an opportunity to obtain finance when they might otherwise not be able to do.
Greater flexibility with an IFISA
Whilst Innovative Finance Isa’s are a non-traditional way to lend and borrow much needed finance, they also provide flexibility in terms of choosing your own rates and the chance for lenders to spread their risk amongst many borrowers. There are around 5 million sme’s in the uk many of whom are unable to expand their operations because they cannot obtain much needed financial support.
There are a number of Innovative Finance Isa peer to peer lending platforms where lenders and borrowers can lend and borrow directly. The lending platforms allow lenders and borrowers to be matched with similar borrowing and lending terms. This means that if borrowers want to borrow small amounts of cash as low as £10 they can do so and choose a rate and a term to suit their needs from as little as 30 days to as much as five years. So if you’re a lender you can spread your risk to lots of different borrowers and if you are a borrower you can bulk up your loan amount and choose preferable rates from a number of different lenders. It really is a win-win for everybody.
A Community of peer to peer lending and borrowing
Many platforms also allow you to build up a profile and you can get feedback from your community of lenders and borrowers which may increase your chances if you’re a borrower of getting a loan. Who knows at some stage, if you are a borrower, you may end up becoming a lender if you build up your business sufficiently well. If you’d like to know more information about how IFISA’s, you can borrow or lend on a peer to peer lending platform contact us.