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The Benefits of Online Alternative Finance Platforms

Online alternative finance keyboard

The UK is now operating a sharing economy. If you have a commodity that somebody else wants, chances are you can make money by renting it out to them. Uber, Airbnb and BorrowMyDoggy are key examples of businesses thriving in the sharing economy and they all operate via online platforms. Following suit, the financial services industry has made the change too.

Banks are slowly becoming outdated as many turn to online banking as opposed to in-branch services. 762 branches were set to close in 2017 due to changing patterns in customer behaviour – a rise on the 583 closures of 2016. Practically every single monetary task can now be completed online with a few clicks of the mouse and many are taking advantage of this. Some alternative finance platforms have adopted this way of operating, noticing that more and more people wanted services at their fingertips. These companies have carved positions as legitimate intermediaries in the supply and demand of capital and are using technology to operate online.

These online platforms offer flexibility to their customers and the ability to acquire capital from the comfort of their own home or office. Money is there to be had and there are certain alternative finance products operating online that allow for easy online connection between borrowers and investors.

Reward-Based Crowdfunding

You will undoubtedly have heard of Kickstarter, GoFundMe, or Indiegogo. More often than not links from these appear on our Facebook feeds when a friend is setting up a new business or taking part in a strenuous sporting endeavour. By visiting the URL, you will usually encounter a page which details the project, the financial goal they want to achieve, and how the money will be spent.

Crowdfunding allows individuals to support projects they believe in by donating as little as £1. Start-ups, entrepreneurs and artists have all utilised the various online platforms for crowdfunding and reward-based campaigns are often the most successful.

Reward-based crowdfunding gives those who donate a gift determined by how much they donate. The creator of the project will specify on the platform what reward an individual will receive in relation to how much they donate. Typically, the larger the sum donated, the more impressive the gift. Furthermore, reward-based campaigns which also operate on an all-or-nothing basis also often see the best success. It is risky, however, as the project will not receive any of their donations unless the goal amount is achieved.

An example of an effective all-or-nothing reward-based crowdfunding campaign comes from Oculus VR – the virtual reality giant is now owned by Facebook CEO Mark Zuckerberg and was purchased for $2.3 billion in 2014.

Just two years prior, however, Oculus only had a duct taped virtual reality headset prototype. In 2012, Oculus set up a KickStarter campaign with a goal of $250,000 to fund the development of the Oculus Rift VR headset.

Whilst there were various tiers of rewards for donators, the majority of the 9,522 backers opted to invest $300. This meant they would receive their own developer kit and the Oculus Rift headset, once it had been created. These were shipped in March 2013 and the final pledge amount for this crowdfunding project hit £2,437,429.

Invoice Trading

Not to be confused with invoice finance or invoice discounting, invoice trading allows businesses to sell invoices via an online platform to free up money. Unlike traditional invoice discounting, there is no obligation to discount an entire debtor ledger and this is no contractual lock-in period.

To take part in an invoice trading network, all businesses and investors apply via an online form and are screened. Once approved, a client bank account is set up and the business can sell an invoice on the platform from as little as £1,000 to over £1million. The purpose of auctioning off outstanding invoices allows the company to benefit from an immediate cash boost.

Businesses can sell off a number of invoices at a time and multiple investors can purchase percentages of single or multiple invoices.

Benefits of Invoice Trading

For businesses, waiting for clients to pay invoices can cause cashflow issues. This type of alternative finance offers flexibility as a plus point, as well as the following:

  • Businesses can access finance typically within 48 hours
  • All invoice trading is carried out via a secure online platform
  • Investors can earn healthy returns on their money through a diversified portfolio
  • Businesses are able to gain back control of their cash flow

Peer-to-Peer Lending

Peer-to-Peer lending has similarities with invoice trading platforms; an entity needs finance on one side and an investor willing to put down cash on the other. Sometimes known as social lending or crowdlending, Peer-to-Peer providers act as the intermediary between the two parties and they allow for the borrowing and lending of money outside of an official institution such as a bank.

Traditional loans through a bank can be a lengthy process. Peer-to-Peer lending takes out many of these time-consuming complications and allows borrowers to take loans from investors – either full or in part – who are willing to lend their own money for a return. Repayments are made to investors monthly or paid at maturity.

What makes Peer-to-Peer Lending different?

Now an incredibly popular form of alternative finance, Peer-to-Peer lending has a number of major benefits:

  • Investors have a great understanding of who they are lending their money to and why. This gives the investors more confidence in where they are placing their money.
  • Investors can profit from attractive interest rates.
  • Investors can spread capital across multiple loans.
  • Offers individuals/companies an alternative financing option, when traditional intermediaries have not approved their request for funding.
  • Everything can be completed online.

Bear in mind

Wellesley Property Bond

  • The Wellesley Property Bond has a fixed rate and duration.
  • The Wellesley Property Bond is an ISA eligible investment, allowing you to earn tax free interest on your investment. Please note, tax allowances and the tax efficient benefit of ISAs could change in the future.

Your capital is at risk and interest payments are not guaranteed. Investment in any Wellesley Property Bonds are not covered by the Financial Services Compensation Scheme (FSCS). In the event of a loan default or if Wellesley Secured Finance Plc becomes insolvent, you may lose some or all of your investment, including interest payments due. If you are in any doubt about making an investment or do not fully understand the risks, you are strongly recommended to consult an independent professional financial adviser before you subscribe.

Wellesley is the singular name for the following collective of companies, Wellesley Group Limited (09811856), Wellesley & Co Limited (07981279) and Wellesley Finance Plc (08331511). Wellesley Secured Finance Plc was established as a special purpose vehicle for the sole purpose of issuing asset backed securities and is not part of Wellesley Group.

The information contained in this website has been approved as a financial promotion for UK publication by Wellesley & Co Limited (FRN 631197) who is authorised and regulated by the Financial Conduct Authority (FCA). Wellesley Property Bonds are issued by Wellesley Secured Finance Plc (the Issuer) and is not authorised or regulated by the FCA.

Wellesley & Co Limited and Wellesley Finance Plc are registered in England and Wales and their registered office and trading address is at St Albans House, 57/59 Haymarket, London SW1Y 4QX. The registered address for Wellesley Secured Finance Plc is at 1 Bartholomew Lane, London, EC2N 2AX.

 

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