Crowdfunding, where property investors and entrepreneurs ask almost anyone to put cash into their proposed venture, has really taken off, indeed there may be signs that the phenomenon is getting out of control on the internet.
There are now numerous websites offering various versions of the crowdfunding concept, but they are usually intermediaries helping those seeking finance to broadcast details of their money making project. They set out the money they will need for the project, how they intend to use it, how an investor can invest, and what the projected return will be.
Some of these sites will carefully vet the fund-raisers, whereas others do not. In others, investors putting as little as £1000 into the venture will be made shareholders in the business venture. Commonly, this may be a property venture where the investor has a share of the real estate.
Crowdfunding then is becoming more mainstream lending for smaller enterprises as banks are not lending to small business as they were, and savers are faced with paltry interest rates in bank and building society accounts.
Cutting out the “middle man” allowing small businesses and property developers to get the funding they need without paying the banks a big slice of their eventual profits, and offering savers far better returns, is obviously appealing to both parties. The crowdfunding websites, of course, make money too. This is typically 7pc of money raised, and some take a slice of returns paid to investors, as well.
Nicola Horlick, a controversial fund manager made famous for juggling her career and a large family, has announced plans to launch a new crowdfunding venture called Money&Co, which will be a crowdfunding website, due to come online early next year. Ms Horlick claims she got the idea after her success this year when she raised £150,000 for film finance company, Glentham Capital in just 22 hours.
The Financial Conduct Authority (FCA), is keeping an eye on crowdfunding to see how it develops and to make sure that private investors are made fully aware of the risks they are taking. The leading crowdfunding websites are all registered and regulated by the FCA, but some are not.
Depending on the type of venture the money is destined for, some investments will be eligible for tax relief under the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) rules. These give investors generous tax breaks, enabling them to claim back income tax on the money they invest.
Lendinvest is one well established crowdfunding website with a successful track record in property investing and is FCA regulated. They have just announced a scheme where details of the properties at auction are pre-qualified for their loans ahead of the sale.
Lendinvest and LOT11 online auctions announced a partnership as an industry first last month and this arrangement will see LendInvest pre-qualify lots which fall within the lender’s criteria, at auctions. LendInvest will flag those properties it is prepared to lend against so that bidders and their brokers can see at a glance which they can safely bid for.
Matthew Tooth, Head of Distribution at LendInvest, said:
“Online auctions are an excellent option for investors looking to secure a good price on their next investment property. This partnership has been designed to ensure prospective buyers and their brokers can move quickly to secure finance on any property that catches their eye.”
Going with the Crowd… https://t.co/8WyVqoicxL
— LandlordZONE (@LandlordZONE) September 26, 2016