At Downing, we aim to make a difference in the lives of our investment community. We design investment products that help investors look after their financial wellbeing, while our investment partnerships support businesses in their ambitions.
In uniting the two, we build lasting relationships that become the foundation of our investment community. And in our openness to learn how to develop these we continue to evolve. We value flexibility, transparency and integrity in everything we do.
So far, over 35,000 investors have helped us raise over £1.7 billion that has been invested into businesses that make a difference, including renewable energy, care homes, health clubs, and children's nurseries. Along the way we have built a vast wealth of experience and expertise, which drive our ability to create value & growth for our members.
We have designed Downing Crowd to allow a wide range of investors to lend directly to businesses that are usually more mature through asset-backed bonds, typically offering returns from 4% to 7% p.a.
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Crowdfunding finances people, projects or businesses by raising contributions from a large number of people, usually via the internet on a ‘platform’. In return, you can receive shares in a company or earn interest. In 2015, the UK crowdfunding market was worth £3.2 billion, with around 20,000 SME’s supported by the sector in that year alone1.
The sector is often associated with reward campaigns or early-stage equity investments in start-ups, but in fact some 97% of the money raised in the UK has been debt-based2, with much of the market lending to more mature businesses with established revenue streams.
This area of the market will always involve securities; either equity or debt (bonds). An investor or their adviser will select individual offerings based on their risk tolerance and investment goal.
You'll probably recognise this as peer-to-peer (P2P) or peer-to-business (P2B) lending, where individuals lend to other people or businesses via a loan contract.
1 ‘Pushing Boundaries: The 2015 UK Alternative Finance Industry Report’, Cambridge University & Nesta, February 2016
2 Liberum Altfi Volume Index UK, as at 08 March 2017
Crowd Bonds allow you to lend money to businesses by investing in a bond (a simple debt instrument). In return, you can earn interest on the amount you lend – typically 4% - 7% p.a. with Downing Crowd.
Crowd Bonds are regulated by the FCA as Non Readily Realisable Securities (NRRS), or more simply, unlisted corporate bonds. They are technically transferable, but as there is no established secondary market, investors should assume they need to hold the bond for the full term.
The borrowers tend to be relatively mature businesses. As they are more established than start-up companies, they tend to have lower risk profiles, which means they can attract cheaper funding to replace more expensive finance undertaken earlier in the business lifecycle. Funds raised through Downing Crowd Bonds are typically used to refinance some of that more expensive funding.
Downing Crowd Bonds are typically secured against a business’ tangible assets, such as wind farms, hydro plants and care homes, to help reduce the risk for investors. Downing acts as security trustee, meaning we have a debenture over these assets. This means that if the borrower defaults on the bond, Downing has the right to sell the assets to try and pay back some or all of your capital and interest.
Please note, your capital is at risk and returns are not guaranteed. The Financial Services Compensation Scheme (FSCS) deposit protection scheme does not apply to the Downing Crowd Bonds. It does, however, apply to funds held in the client money account prior to investment in Downing Crowd Bonds.
Under the FSCS investment protection scheme there may be circumstances in which investors can claim up to £50,000 of compensation where Downing LLP is unable or unlikely to honour legally enforceable obligations against it (e.g. claims for fraud or misrepresentation). However, investors will not be able to claim under the FSCS simply because a Bond fails to repay capital or pay interest. This is unlikely to significantly affect the risk of investing in the Downing Crowd Bonds.
A common criticism of crowdfunding and peer-to-peer finance is the lack of transparency from platforms on what due diligence they have done on behalf of investors.
Due diligence can include reviewing any contracts, warranties or insurance policies that are in place, checking the borrower has any relevant permissions or licenses required and reviewing third-party valuations of the underlying assets. The larger investment amount involved with Crowd Bonds can allow platforms to carry out more due diligence, providing you with more detail on what you’re investing in, in comparison to some other types of crowdfunding.
At Downing, we place high importance on making sure you have all the information you need to make an informed decision, including giving you a breakdown of the due diligence we’ve undertaken on your behalf. While we believe that we carry out due diligence to an appropriate level, we use certain assumptions, including that all documents and historical details provided to us by the borrower are accurate, and genuine and that no material information has been withheld from us by the borrower.
We always set out the due diligence undertaken on each project in the relevant Offer Document.
Many of the businesses issuing Crowd Bonds on our platform have previously been investments through the VCT or EIS funds we manage, so we have a good understanding of the business fundamentals and the management team. As a point of principle, we don’t invest in sectors where we don’t have any knowledge or experience.
At Downing, we think it’s important that you have as much information as possible to make an informed decision. To make it clear where your money is going, a full Offer Document is provided to you for each Crowd Bond. This details:
The IFISA wrapper allows you to invest in Crowd Bonds with all the tax advantages of an ISA - an attractive prospect in the current low interest environment, coupled with rising inflation.
Launched back in April 2016, the Innovative Finance ISA (IFISA) offered the opportunity to invest in peer-to-peer (P2P) products with the tax advantages of an ISA, including tax-free interest. As of 1 November 2016, legislation was introduced to extend the new Innovative Finance ISA (IFISA) to include Crowd Bonds.
With the annual ISA allowance now at £20,000 in 2017/18, many investors are looking for ways to diversify their portfolios.
And with Crowd Bonds typically offering interest rates of 4%-7% p.a., this really sets the IFISA apart for those savers and investors happy to take higher risk, particularly when compared to the current low interest rates offered by many cash ISAs. However, the IFISA is not the same as cash ISAs as your capital is at risk and is not protected by the Financial Service Compensation Scheme deposit scheme.
For more information about how the Downing Crowd IFISA works, click here for our FAQs.
SIPPs are a type of personal pension plan that allow you to make your own investment decisions based on a range of opportunities allowed by HMRC.
Downing Crowd Bonds are eligible for inclusion provided your SIPP provider allows non-standard assets, and subject to the discretion of trustees. If you are interested in investing with a Crowd Bond in your SIPP, please notify firstname.lastname@example.org as soon as possible so that we can liaise with the trustees.