Everyone’s investment portfolio is different. In some cases an investor will opt for a simple split between a cash-in-the-bank safety net and equities (purchased direct or as part of a fund) and perhaps some bonds. More commonly these day the portfolio might also embrace property, alternative investments such as wine or antiques and equity stakes in small and medium sized businesses. That latter class has become much more attractive in recent years, thank to the tax breaks available through the Enterprise and Seed Enterprise investment schemes – respectively, (EIS and SEIS),
Taking an equity stake in a small company is about more than allocating cash with a view to securing a substantial return when the shares are eventually sold on at (hopefully) a profit. It is also about taking a direct interest in a business with the potential to grow and thrive. Successful entrepreneurs are often keen to invest in startups to recapture some of the excitement of starting and growing a business. It’s an enthusiasm that is shared by many other High Net Worth individuals and sophisticated investors.
A Specific Niche
But equity investment in entrepreneurial businesses occupies a very specific niche within a wider portfolio. In one sense you could file any capital allocated to that niche under ‘money you can afford to lose’. Although any pain is cushioned by EIS and SEIS tax breaks, equity investment in startups or early stage companies involves both risk and the possibility that there will be no clear sight of a return for several years.
The Lending Alternative
There is, of course, another way to support SME businesses and that is to lend direct.
This is an area of the corporate finance market has been opened to a wide range of investors thanks to the emergence of market lending platforms To many people the term market (or platform) lending is synonymous with Peer-to-Peer lending but in reality the landscape is quite diverse. Peer-to-Peer lending platforms are typically aimed at a broad swathe of investors. A few will be High Net Worths but the initial appeal of P2P was to general, ‘retail’ investors looking for opportunities to make their savings work a little bit harder than they would in a bank. But sitting alongside P2P, platforms have emerged that are aimed squarely at High Net Worth investors. The Route – Finance’s Private Debt Platform is one of these.
The common factor is that market lending platforms provide investors with means to achieve higher than average interest rate returns by lending to small businesses. As with all lending, the return is not dependent on the success of the company but by its ability to meet the repayment schedule. In other words, the return is not reliant on the business growing and the owners navigating their way to an exit event. It is simply a matter of the business meeting its commitments.
But that’s not to say that lending to SMEs is nothing more than a transaction. While it’s probably true that a lender is not as engaged with the development of a small businesses as an equity investor might be, debt platforms do offer investors an opportunity to back businesses that they judge to be interesting and worthy of support. There is a certain satisfaction, for instance, in lending to a company that needs capital to buy the equipment that will in turn allow it to ramp of capacity and expand into new markets.
All platforms have their own acceptance criteria. In the case of The Route – Finance Private Debt Platform, the focus is on special situations. In practical terms, this might mean lending to company that needs capital to execute a turnaround plan or a business that requires cash to undertake an expansion plan that it deemed outside the lending criteria of High Street banks.
Investment via The Route – Finance is open to Members of The Route – City wealth club. All are HNWs and/or sophisticated investors, with the experience and knowledge to make an informed decision on whether or not to invest in particular company. In addition, The Route carries out comprehensive due diligence before putting the opportunity in front of Members.
The due diligence ensures that, despite the special situations, borrowing companies are viable and have realisable assets as security for the loan. However, given their circumstances, they are also comfortable with paying a higher than average interest rate. This is passed on Members. Overall, The Route targets a 15% return per annum on lending to businesses.
Equally important, it’s a solution that gives Members a chance to profitably support a broad range of SME businesses.
To find out more, telephone The Route on 020 3141 9040
Become a Member
There’s a good chance you already know one or more of our Members through your business network. If you’d like to find out more about how we can help you grow your assets faster, and with less risk, please get in touch.