Written by FCSA Business Partner, Octopus Investments.
For a contractor operating as a limited company, having surplus cash on the balance sheet should be a blessing. However, with the Bank of England’s decision to keep interest rates at 0.25% – the lowest it’s been since the Bank’s formation in 1694 – some businesses might start to feel like they’re being burnt by their bank rate.
And they might well be right. Worryingly, with inflation hitting a near four-year high[1], as a contractor, your company savings are likely to be losing value in real terms. It makes it all the more grueling that some banks have actually raised the prospect of starting to charge commercial customers to keep deposits.[2]
But, when you consider the alternatives, it’s not hard to see why the British Banking Association (BBA) recently reported an increase in the amount of cash held by SMEs in current and deposit accounts.[3] For example, while past results aren’t a reliable indicator of future performance, research by Lipper shows that investing in the FTSE 100 for any period of up to three years since 1984 has carried nearly a 20 per cent chance of loss. [4] Not everyone has the stomach for that kind of volatility.
It’s led some contractors to turn to a new type of asset class, one that’s typically only been available to the big banks. It’s called property-backed lending, which, through the power of peer-to-peer technology, gives smaller businesses and individuals the opportunity to be the lending bank. It’s a new way to target potentially attractive rates, but without experiencing the fluctuations of the stock market.
Also, built on one of the oldest asset classes around – bricks and mortar – it gives you first charge over the property. It means investors would be the first to get their investment back should the borrower default on their loan and the property needs to be sold.
It’s why, just over a year ago, we launched Octopus Choice, giving self-employed individuals and their companies the chance to target inflation-beating interest, but without having to endure the ups and downs of the stock market. We’ve since had over 4,000 investors trust us with £70 million of their money – earning well over £1 million of interest in the process. (But remember, past performance isn’t a reliable indicator of future results.)
Contractors work hard for their money. Now there are ways for the money to work harder for them, too.
For more information, visit www.octopuschoice.com/corporate
Capital is at risk if you invest. Terms and conditions apply – please ensure that you fully understand these and the risks before choosing to invest with Octopus Choice. These are available at octopuschoice.com/risks and octopuschoice.com/terms. Octopus Choice is the trading name of Octopus Co-Lend Ltd., 33 Holborn, London EC1N 2HT – which is authorised and regulated by the Financial Conduct Authority (FCA registration number 722801).
[1] http://www.bbc.co.uk/news/business-40259392
[2] http://www.bbc.co.uk/news/business-36889828
[3] https://www.bba.org.uk/news/statistics/sme-statistics/bank-support-for-smes-1st-quarter-2017/#.WXcfdRPyvfZ
[4] Lipper, Percentage annual change: FTSE 100 Total Return Index (1984 to present).
