High returns investors can get from crowdfunding are because of the lack of supply of credit, Nicola Horlick has said.
The chairman of Glentham Capital and the chief executive of crowdfunding platform Money & Co addressed the Cisi financial planning conference yesterday (4 October).
She predicted the market would be “flooded” with crowdfunding products next year when more platforms start getting their permissions from the Financial Conduct Authority.
But she dismissed concerns that the high returns available on the products was because they were risky.
Speaking to advisers gathered at the conference in Newport, she said: “It is about supply and demand. There is not much supply of debt available to small and medium-sized enterprises (SMEs).
“I think the pricing is to do with the lack of supply. I don’t see that changing. I don’t see banks rushing back into SME lending.
“It takes them as long to lend £100,000 as it does to lend £10m and for them it is just not economic.”
She said her company secures its loans through first ranking debentures on the assets of the businesses it lends to.
Since April investors have been able to include peer-to-peer loans in Innovative Finance Isas.
Ms Horlick said very few Innovative Finance Isas providers had been able to get permission from the Financial Conduct Authority in time for the product’s launch.
But she said the Innovative Finance Isa would prove popular as more providers come to the market.
Ms Horlick said: “The big flood is going to come next year because very soon the big platforms will get approved and they will be able to offer the Isa.
“That will allow people to get a tax-free income stream.
“We have an average gross yield of 9.1 per cent and we take a fee of 1 per cent. If you wrap that in an Isa that looks pretty attractive and the Isa allowance is rising again.”
Savers will be able to save £20,000 a year in an Isa from April 2017, then chancellor George Osborne announced in his 2016 Budget.