The CODE Investing 2019 UK Investor Report
The report* examines the growing trend in lenders supporting loans as a preferred way of financing small businesses.
The continued rise of FinTechs such as CODE Investing means that financial services customer journeys are becoming faster and more efficient. SMEs have increased access to both traditional and non-traditional lenders through symbiotic partnerships with institutions, banks, High Net Worth (HNW) and sophisticated investors.
Business finance in the AltFin arena is fast becoming a stronger proposition for many borrowers and lenders. This is not least because of FinTech companies like CODE, developing automated processes that allow us to spend more time focusing on linking the right businesses to the right lenders by matching criteria.
Our second annual report examines trends of how lenders invest their funds, the length of time they’re happy to put their funds out for and the level of return expected. It also looks at their willingness to invest in overseas as well as homegrown opportunities.
Most private or retail investors are interested in mid-term loans and ROI of 9%
The survey found the majority of private i.e. sophisticated, HNW or general individual investors use wealth managers, brokers and independent financial managers to help manage their funds. Only a small minority of only 5% prefer to go it alone.
Of those private investors, 33% expect to invest between £10-100k, with a further 27% investing £200-500k, and 7% looking to invest £1m or more. One survey respondent replied that they “decide on a case by case basis and would look at giving the money as services instead of cash”.
In terms of ROI, almost half of respondents expect to see returns of between 5-9%, a further 28% hope for 10-20% return, with a small fraction (just 3%) banking on getting 100% or more of their investment back.
How long are investors looking to outlay funds for? Our report found that a year on, people were looking for shorter term investments. 35% wanted ROI between 2-3 years after investing and 28% wanted funds back after only a year. A much smaller percentage (14%) of investors would be comfortable putting their money out for three to five years. Saying that, there was a rise in the number of investors happy leaving funds untouched indefinitely. This rose from 8% to 12%.
Investing in Debt:
- There was a slight drop by 4% in the number of lenders (66%) who would be comfortable loaning funds to businesses both at home in the UK and overseas with 34% devoting funds to homegrown SMEs exclusively, and a smaller percentage (15%) who would invest in UK and European business only.
- 43% are happy to take on more risk by lending to newer businesses with less track record but more growth potential.
- 57% are more cautious, preferring to invest in more established businesses.
When it comes to sharing the risk, most would still prefer to share this with other lenders, with 21% stating that for the right debt size they would be happy to assume the whole debt.
But when reviewing borrower credentials, 40% of lenders said they would still invest in a business even if it didn’t have any tangible security, reflecting a higher risk appetite among some private investors.
Lending to property development and property investment businesses has become as popular as lending to trading businesses.
- 42% say they would invest in trading businesses
- Almost 50% stating they would invest in real estate
- In terms of real estate, investors were equally keen to put their funds into property investment and development
There’s a growing appetite amongst traditional lenders and private investors to tap into a market of SMEs and real estate businesses.
The trend we spotted last year of interest in the SME lending market, despite Brexit uncertainty has continued to grow over the last 12 months. This is to the mutual benefit of borrowers and lenders, as we implement more efficient systems that allow us to focus on finding the best match for SMEs and those seeking to invest in them.
This is heartening for SMEs and investors alike. It encourages us on our path to creating more efficient means of supporting UK business growth, even more so now with the benefit of our institutional lender partnerships.
*Report conducted in conjunction with The Global Group UK Investor Show.
The latest banking report highlights that around half of SMEs are aware of the alternative finance options
Banks may be reluctant to lend to SMEs until the “Brexit fog” has cleared, but that’s not stopping business lending from alternative sources.
Continued delays to Brexit, mean more months of uncertainty, but business is still doing well – at least for now.