Finance firm the Valour Group has launched a fintech mini-bond which aims to give investors an annual return of almost 8.5 per cent.
The Valour Group Bond, which is said to be the first mini-bond in the UK without a fixed-term of investment, was originally released in September in a bid to raise £5m in investment but the group decided to relaunch the bond due to demand.
It will be available until 28 February next year with interest paid every six months.
Mini-bonds are an unsecured way for individuals to lend money directly to businesses.
Mark Bowker, chief executive of Valour, said the mini-bond was originally issued with a fixed term of investment, but is now open to people who want to invest over shorter time frames.
He said investors should seek professional advice before investing as their money is not protected.
The mini-bond has a minimum investment of £1,000 and gives backers the opportunity to invest over one, two, three or four-year periods.
At the end of their preferred investment period, investors will receive their initial outlay back.
But the offering was met with criticism by Scott Gallacher, chartered financial planner at Rowley Turton, who said mini-bonds are potentially the next mis-selling scandal.
“While increasingly popular, the Financial Conduct Authority advises that they are illiquid and can be high risk, as the failure rate of small businesses is high and there is no protection from the Financial Services Compensation Scheme if the issuer fails.
“Also, mini-bonds are generally not traded, so your money is effectively locked in until maturity as mini-bonds cannot normally be sold on before the end of its term.”
“It should be common sense that, if a mini-bond is paying up to 8.49 per cent interest with the bank base rate being just 0.25 per cent, there much be a degree of risk involved, otherwise the rate would be much lower.”
Mr Gallacher said clients should only invest in this type of product if they can financially, and psychologically, accept the risk of a 100 per cent loss.