With interest rates at a historic low of 0.5%, and UK businesses – particularly those in the SME segment – struggling to access capital efficiently from mainstream sources, it’s little wonder that the alternative finance market is experiencing unprecedented levels of demand.
Two examples illustrate this well. First, the UK’s peer-to-peer (P2P) lending market is on track to top £1bn this year – the sector hit £500m in the first-half of 2014, a doubling in volume over the previous six months. Second, recent years have seen a substantial rise in the popularity of ‘mini-bonds’, with a spate of launches by companies as diverse as John Lewis, Naked Wines, Wasps rugby and Surrey cricket clubs, Hotel Chocolat, men’s toiletries firm King of Shaves, buy-to-let lender Paragon, coffee shop chain Taylor St Baristas, and Hugh Fearnley-Whittingstall’s restaurant and food business, River Cottage.
Wellesley’s recent launch of a new tranche of its already successful mini-bond attempts to capitalise on the upsurge in interest in both these product phenomena, given the company’s status as the UK’s fastest growing P2P platform, having funded over £250 million of asset-backed loans since June 2013.
Previous tranches of the Wellesley mini-bond have raised in excess of £16m. This latest tranche, which targets circa £6m in funds raised, offers fixed rates of interest of 6% pa and 7% pa gross, payable half-yearly, over a choice of two fixed terms: three years and five years respectively. In addition, dependent on the term selected and the level of investment (minimum only £100), generous cashback of up to 3% of that investment is available.The product is available to UK-based individuals, companies, charities and trusts, and may be placed in a Self-Invested Pension Plan (subject to the investment policy and procedures of the relevant plan).
The mini-bond (offered by Wellesley Finance plc)gives investors the opportunity to invest in the overall Wellesley business rather than specifically in the P2P platform (managed by Wellesley & Co) and, by doing so, they gain access to an unlisted business offering healthy fixed returns and benefit from its continued growth. The Wellesley model – known simply as ‘The Wellesley Way’ – is built on applying technological innovation to the process of connecting investors seeking healthy returns on their capital with creditworthy borrowers seeking a competitive source of funding.The capital raised though the mini-bond will enable the business to invest in a number of initiatives and opportunities designed to broaden its market offering and extend its lending capability, thereby building on the significant successes it has achieved over the last 18 months.
In common with other mini-bonds, the Wellesley issue is unsecured, unlisted, not tradeable on any recognised exchange, non-transferable (except on death) and is not protected by the Financial Services Compensation Scheme. As a consequence, these products are less secure and lack the flexibility of conventional bonds with an isolated number of issuers getting into difficulties.
However, a significant degree of reassurance is represented by the fact that Wellesley’s P2P model is unique, and the platform is arguably the UK’s most stable P2P lender. The business adheres to a number of core principles which define that unique proposition:
- it lends only to experienced, creditworthy, carefully selected commercial borrowers
- all loan applications are rigorously evaluated by a highly experienced Credit Committee
- unlike traditional P2P lending companies, it only participates in asset-backed lending – all loans are secured on tangible assets, such as residential or commercial property
- it commits its own money alongside that of its investors – indeed, it is the first, and remains the only, platform to risk its capital by placing its own funds into every loan made
- its ‘Auto-matching Tool’ optimises diversification by spreading investors’ funds across the entire loan book on a weekly basis
- it maintains a Provision Fund that can be called upon to restore investors’ funds should a borrower default on the terms of its loan
- all lender security is held in trust and is segregated from the assets and liabilities of the Wellesley Group.
These factors mean that the risk of any investor suffering a loss in the event of a borrower’s default is dramatically reduced. Indeed, Wellesley has a 100% track record, with no investor ever having suffered any financial loss, despite having made over 200 loans to date with a value exceeding £250 million, including the UK’s largest ever P2P loan of £10.8m used to purchase and develop the iconic building Burwalls near Bristol.
Graham Wellesley is the Founder, Chairman and joint CEO of Wellesley & Co.