For the past seven years we’ve watched the state of the UK recession with baited breath at every rise and fall in GDP, everywhere you turn there are local businesses shutting shop, homes being remortgaged, a record high in unemployment figures, cutbacks, energy hikes and banks being bailed out of danger. First time buyers can’t afford to get onto the housing ladder, businesses are struggling because banks aren’t lending, and customers don’t have the same level of disposable income because employers are freezing wages whilst the cost of living continues to increase.
The wheels of society have slowly ground to a halt and only change can get them turning again; we must address the way that we spend, save and invest our money. Cue rebuildingsociety.com, “a peer-to-business lending platform that connects creditworthy UK businesses looking for a loan with individuals prepared to lend their own money for returns that outstrip retail savings products. The peer-to-business lending market is one section of the crowdfunding movement and is sometimes described as ‘crowdlending’ or incorporated into peer-to-peer lending. Put simply, lending through rebuildingsociety.com offers a better gross return when compared to retail banking products, like ISAs. We believe it is the future of online financial services.”
I had my first young-savers account at the age of twelve with the Natwest bank, it then went on to become my current account which I have held for fourteen years now. I also have an ISA with Natwest for savings and aside from that I have no other accounts, investments or credit cards. I have never been in debt and had one loan, again through Natwest as a teenager for which I didn’t default. It is therefore safe to say that I am a fairly basic and average customer and haven’t dabbled in stocks and shares nor lending before. I do however enjoy helping local businesses and charities with marketing and fundraising and believe that we should all support the ‘go local’ mantra of using the unique and reliable small businesses around us.
Lending to a business has the potential to provide a better gross return on your money than that offered by the banks, not only does it benefit you as an investor, but it also strengthens small businesses and aids in community growth leading to increased employment and productivity. But with every investment comes risk, something rebuildingsociety.com are keen to keep to a minimum for investors. Each business applying for investment is independently credit checked and those with a bad credit rating are not allowed to join the network. They must also provide performance trends to show the health of their business, company accounts for the past two years and Companies House reports, with various forms of security offered in the event that a business might default on its repayments. There is also a forum where potential and current investors can put questions to each company as a way of keeping communications activate and providing financial transparency to all. In short, the security checks are firmly in place and to even present themselves online for investment a company must be healthy.
Each business is graded into one of four bands starting from the lowest risk of A+ to the highest risk of C, with the average interest rate earned reflected in this; it is therefore most beneficial to invest across varying bands and multiple businesses. I will begin my investment journey with £50.00 to see if I can beat the bank and make my money work for me whilst helping to rebuild society at the same time. I believe this is a great financial opportunity for all involved and a welcome change to the way that we maintain our money, after all, the banks earn a generous interest on funds sitting in our accounts that isn’t entirely passed on to us as the customer, so it’s about time we took control of our finances to make them work for us.
And it really couldn’t be easier to bid on a loan. Companies pitch for their loan amount and purpose, answering questions, providing financial history and allowing you to set your own loan amount and interest rate. Whilst the bidding takes place it is possible for other investors to outbid you with lower interest rates in which case your credit is returned to your account if you do not wish to match them in the auction. You also have the ability to sell parts of your loan to other lenders at any time once the loan completes after the auction has ending, and all money is typically available, committed or live which can be withdrawn or loaned out as necessary.
I chose to place my first bid on an IT company, Advatek, as they have been trading for almost three years and had an annual turnover last year of £488,000 with a net operating profit of £45,000. They are looking to take on two further members of staff in 2014 and have an opportunity pipeline in excess of £4million. They have a risk rating of B which is fairly middle ground and have already received £40,260 of the £50,000 funds required. I set my interest at 17% as the average comes in at 16.41% and have bid £20 investment. There are eleven days left on this auction.
The second company I chose to bid on is a quilted bedspread manufacturer, La Drape International, who have also been trading for almost three years and supply hotel groups, cruise ships and interior designers with luxury bedding. They are looking to upgrade their machinery in order to increase their turnover with an existing customer for £200,000, as well as many other orders already booked across 2014 and manufacturing due to start in April. As this company has a high risk rating of C, I set my interest rate at 20% in line with the average and have bid the remaining £30 of my investment. They have so far received £44,190 of the £54,000 funds required and there are less than 24hrs left on this auction.
You can see the history of bids made by others, for which amounts start from as little as £10 and go up into thousands depending on the individual investor. It is a lot like Dragon’s Den only you don’t have to be a millionaire to take part. I found the questions and comments area particularly useful as the businesses were able to justify their need for investment whilst other lenders quizzed them over growth and assets before giving them their seal of approval. To know that other lenders are content with the facts and figures then makes it easier to decide whether it is a sound investment or not for yourself. I wouldn’t have all of the knowledge I would need from the get go to have been able to have made these decisions if this feature hadn’t have been available. The website is well thought out, practical and very informative which gives me peace of mind over my £50 investment. £50 may not seem like a lot to begin with, and it certainly won’t make me a millionaire overnight, but it is a great way to begin my tentative journey as a lender, which if proved successful, I would happily add the profit back to the pot as well as a further amount so that I could spread it across more companies and see a greater return. It could also be helpful for investing on behalf of the children over their existing young savers accounts, and could even be used as a present for friends and family by providing a gift that keeps on giving!
Now I must wait until the auctions finish to see if either of my bids will be accepted or declined and returned to my account, in which case I would have to look into alternate companies and bid again. Let’s see if I can turn my £50 into something a little more healthy, how exciting!
I eagerly logged into my rebuildingsociety.com account today to see how the La Drape International auction ended and if my bid for £30.00 would be accepted; but when I arrived on my home screen I was greeted by a £30.00 available balance, oh dear. It seems my first auction was a non-starter and I can only presume that my 20% interest rate was a touch too high. Never mind, let’s have another go!
I decided to explore another avenue, the Micro Loans menu, which allows you to buy live loans from registered members already lending in a business currently making repayments. The amounts and rates are already set and you simply purchase another members loan from them and receive the future repayments from the business. I chose Exquisite Handmade Cakes who received a £50,000 loan to purchase a new piece of cutting equipment. The owner, Viv Parry is a very busy lady, pushing the company forward and achieving prestigious clientele and venues including the Chelsea Flower Show and Royal Ascot with very grand plans for future production.
I have purchased a £26.79 micro loan with an interest rate of 12.1% in Exquisite Handmade Cakes and am still awaiting the outcome of my £20.00 bid with the Advatek auction. My first repayment is due to be made on the 28th February, which is in two weeks time and I have to say it’s such a great feeling to know that I’ve invested my first amount. This leaves me with £3.21 in the pot which I will have to build up in order to invest in my next company.
My gross average return with rebuildingscoiety.com stands at 13.8% which is a bit of a difference from Natwest’s 0.15% – 1.25% interest rates paid on credit balances for current accounts. I now have ten days to wait for the Advatek auction to end and see if my bid is accepted. How exciting!
I was so incredibly excited today when I received an email from rebuildingsociety to inform me that my bid for the loan to Advatek had been accepted, so I logged onto my dashboard eagerly to see my progress in figures.
I am extremely happy with my 15.08% average return on my £46.07 investment in two businesses. I am yet to receive my first repayment but when I do I will be looking to purchase another micro loan with the funds as they start from just a few pounds. I’m really enjoying using rebuildingsociety and when it’s my parents wedding anniversary at the end of this year, I will be giving them the amount I have made as a gift of these loans, so fingers crossed I can build a good return for them.
After arriving home from holiday I checked my emails to find a fantastic notification that I had been issued my first repayment of £0.52p from Exquisite Handmade Cakes Ltd. which has earned me the interest of £0.30p. Wow! 30p may not seem like a lot of money, but my investment is less than the cost of a Chinese takeaway, so the return is fantastic.
You have no idea how excited I am to have the ball rolling for repayments. I’m trying my hardest not to transfer over some more funds to invest from my bank account as I want to stick to the original £50.00 stake and see what I can grow it to. Perhaps I’ll start another one after this to save for Christmas or a holiday for the children.
I had been issued my first repayment of £0.21p from Advatek which has earned me the interest of £0.28p. So it seems from my humble investment that it may take some time for me to see a great return, but it is there nonetheless and all relative to my initial stake.
I had a little browse around the micro loans with the hope of reinvesting my £4.62 of available funds, but it seems that the minimum current loans available start at just over nine pounds so it will be some time yet until I have enough money in the pot. I did however find a livestock company at a ‘D’ rating for risk and a 19% interest rate; they had made six of their repayments to date for a £35,000 loan, with four being timely and two late, but all repayments made nonetheless. I would have quite happily invested £50.00 in them had it been in my pot. What a shame!
Checking my account overview I was pleased to see my interest earnings of £0.58p with an average net return of 15.30%. I cant help but think how addictive it would be to add another couple of zero’s to the end of my investments, as the money is only sat in my Natwest bank account doing nothing at the moment. But in the sport of being fair, I shall stick to my initial £50.00 investment, as difficult as that is!
Today I received my second repayment from Exquisite Handmade Cakes Ltd. for the light and fluffy sum of 52p which has earned me 29p interest. Not bad for doing nothing!
Today I received a £0.22p repayment from Advatek for my microloan, earning £0.28p in interest. Fab!
Today I received a £0.53p repayment from Exquisite Handmade Cakes Ltd, earning £0.29p in interest.
Check back shortly to see how I’m getting on and if you’re thinking of investing too please keep me up to date on your progress!