Crowd2fund is a United Kingdom based peer-to-peer (P2P) lending platform. The platform facilitates loans to companies. The products on offer is not just your standard business loan – investors can choose between a varied range of investment products from equity to the classic direct lending seen on most P2P platforms.
Crowd2Fund Review – Investment products
The 5 products available on Crowd2fund are the following:
This is purely a donation and will not pay interest or generate other forms of income for the investor. It is a way to get philanthropic projects funded and the only benefit aside from doing a good thing is that it is tax deductable.
The classic P2P product where investors lend money directly to businesses and in return receives a monthly repayment.
A type of investment where repayment to investors will fluctuate for the loan term. The repayments are calculated based on % turnover for the business, on a monthly basis. The businesses however are subject to repayment of interest and a minimum capital repayment every month.
A bond like any other bond you would buy in the secondary market. The type of bond available on Crowd2Fund is an interest only bond with face value repaid at the end. This has the added advantage of being tradable after you buy it.
This enables the investor to buy directly into a company and get an ownership stake, like you can via stocks on exchanges. An added benefit is tax relief in the form of EIS and SEIS. This review will not go in-depth with these schemes.
Crowd2Fund Review – Ways to invest
Aside from an interesting range of investment products, Crowd2fund also offers 2 ways to invest on the platform. The first way is the manual way seen on many other P2P platforms. Here the investor looks through the portfolio of loans that need funding and select the ones the wish to invest in. The second option is automatic. It is based on an account type called ISA and is only available to UK residents. It invests on behalf of the investor using specified criteria such as desired savings plan, risk appetite and more.
Crowd2Fund Review – Returns
The platforms aim is to deliver an APR (Annual percentage rate/return) of 8.7% gross. The platforms actual gross APR has outperformed their target and has been above 9% consistently for at least a year. Crowd2fund has a “for investors” section where they have created a calculator for investors. Here you can choose your desired level of return (risk) ranging from low to high, how much you wish to invest and for how long. The calculator then spits out the investors total return, monthly repayments and how much the investor pays in total fees to the platform.
Crowd2fund charges a fee to both borrowers and investors. For investors this amounts to a 1% annual fee on interest and capital payments to the investor – the site offers various calculation examples to clarify. There is also a 1% fee when adding funds to the site if you are using a debit or credit card.
Crowd2Fund Review – Risk
There are both general risks and product specific risks and these are also listed on the platform under the “Risk” section. The two main general risk factors are loss of capital and deviation from expected returns. Loss of capital is a risk in any investing endeavor and Crowd2fund does not guarantee any payments if a borrower defaults. A deviation from expected returns stems from the fact that the platform aims to deliver a target return of 8.7% but this is a forecast and even if they have delivered better than this in the past, its not an indicator of future returns. The platform lists its various investment products based on risk, where donations are the least risky (makes sense, since you should not expect any return here anyway) to the most risky in the form of equity. Equity is the most risky since you do not receive any interest but are dependent on the business being successful in order for the price of equity to rise. In the 2nd highest risk bracket are bonds, this is because you only receive interest during the term of the loan and only at the very end will you get your capital back. For both revenue and loan products you receive monthly interest and capital repayments throughout the term, thus minimizing your risk of capital loss as this is gradually recovered through repayments. The risk levels for each product obviously also has to do with what type of businesses that underlies them. A high growth potential company will probably go for the equity option as they are not required to pay back any money directly and instead focus their funds on growing.
As for loss history, the platform has done well. During the last year losses have never exceeded 0.5% and they are 0% most of this time.
Crowd2Fund Review – Final thoughts
The investment products offered by Crowd2fund are definitely some of the most interesting I have seen so far in the P2P marketplace. There are many positives to this – first of all it lets you tailor your portfolio more as an investor in regards to risk. Secondly it is a great way to diversify, take the equity product for example; it resembles private equity, which is usually reserved for sophisticated investors and specialist funds. Crowd2fund also offers an exchange; this can be used if an investor wants to exit an investment early by selling it to other interested investors. On the basic level the site is very professional with a lot of available information on everything from risk factors, return calculators to their due diligence process.
Crowd2fund however is not the easiest platform for first time investors and people interested in P2P. Since its products are more exotic so are the underlying calculations, risks and terms of investing. I am tempted to come down on the fees, but considering the platform offers quite unique investments this can be defended. With sophistication comes cost. One thing I would like to be clearer though is the returns they aim for. It is stated that you can earn an estimated 8.7% APR with the ISA account type, this is obviously for UK residents but the platform does not state if their general calculations on return also assume the investor to use an ISA account.