Crowdfunding Bonds

At the end of last year, UK interest rates doubled from 0.25% to 0.5% which, while still a small number relative to history, marks the first time they have risen for more than a decade. And, with global growth accelerating, many expect this trend to continue.

This means it may become more difficult to beat cash returns over time. Even if investors were to lock themselves into a cash ISA for five years, the most competitive return they could expect in today's environment is less than 3%* which, if interest rates keep rising, could mean the value of their hard-earned cash gets eaten away.

In this environment, how can investors best put their cash to work over the next few years, without taking on much the higher risk levels of equities?

One lower-risk alternative, which may have slipped below some investors' radars, is Crowdfunding Bonds.

What are Crowdfunding Bonds?

In layman's terms, Crowdfunding Bonds are a way for people to invest in a project, which is usually funded via an online platform.

We offer investors access to this through Downing Crowd.

More about Downing Crowd

Downing launched its crowdfunding platform in March 2016. It offers bonds backed by tangible underlying assets; these can range from renewable energy suppliers to pubs and property bonds.

Downing offers investors an easy-to-use platform, which provides access to asset-backed investments with defined rates of return. At time of writing, these returns range from 4% to 7.6% per annum, depending on the length of term and risk taken.

As with all investments, investors' capital is at risk. Nevertheless, a key feature of these products is Downing's focus on minimising risk. It does so by:

  • Ensuring that the loan-to-value figure is as low as possible – this means that, if an underlying company becomes unable to return investors' capital and interest back to them, assets can be sold to cover this amount. 
  • Having 'first charge' over the asset, so Downing clients will be first in line to receive any unpaid figures.
  • Ensuring a high level of due diligence and understanding of investee companies. These are often companies which Downing has invested into before, or an entrepreneur which the team has previously worked with.

Key benefits:

  • Fixed rate of interest, which is typically between 4%-7% per annum (although this can change as new offers open). 
  • Short-to-medium term horizon of between one and three years. There are also regular-access bonds available for those who do not want to be tied in for longer than a month.
  • Investments are typically made in companies which are established and growing – not at the start-up stage that crowdfunding is usually associated with.
  • Downing Crowd has raised over £52m to-date and has had no 'bad debt' (or debt which cannot be recovered).

Important points to consider:

  • Capital is at risk. Bonds are investments, not deposits. Returns are not guaranteed and investors may not get back the full amount invested.
  • Bonds are not covered by the Financial Services Compensation Scheme (FSCS).
  • Investors are recommended to diversify their funds across a number of investments to reduce concentration risk.
  • The bonds are transferable to other members of the Crowdfunding platform but they are not listed. Investors should assume they will need to hold the bonds for the full term.

How do I invest?

1. Complete your profile on the Downing Crowd website.
2. View the bond offers and download the relevant bond offer document, paying particular attention to the fees, taxation and risk factors.
3. Place your order for the bond(s).


Published on 25/04/2018