With bank interest rates at a record low, many alternative investments such as ‘crowdfunding’ have become increasingly attractive; with organisations boasting higher interest rates than banks. As with any investment however, and in particular with an investment of this nature, the risks need to be carefully considered, as well as the terms and conditions.
Crowdfunding, as the name suggests, denotes any investment opportunity whereby numerous individuals contribute small amounts to a managing company, who invest the collective contribution into an array of projects; from property development to entrepreneurial initiatives in need of financial backing.
By way of example, on a popular online crowdfunding platform, investments as little as £1000 are collectively applied towards the purchase of property in need of refurbishment. Each investor becomes a stakeholder in the property and following refurbishment, benefits from either a cut of the sale profits, or, if the property is leased, a fixed net return from the rental income.
It is important to remember that the prospect of high interest rates is somewhat compromised by the fact that investors in schemes of this nature will not be afforded protection by virtue of the Financial Services Compensation Scheme. Consequently, investors must rely on the honesty and transparency of the organisation in question; a far cry from the security provided by banks.
Furthermore, these schemes often seek to exclude liability in relation to the accuracy of their interest rates and suggest that any potential investor should not rely on the figures presented, nor act in reliance of them; a curious position given the limited amount of information available to investors.
Clearly, consideration must given to both the benefits associated with these schemes; coupled with the potential hazards. Investors should therefore tread carefully, including seeking appropriate legal and financial advice. For more information or if you are considering entering into such an investment, or indeed seeking funding for your business via this route, please contact us.
By Stephen Greenwood, Business Solicitor in Lancashire
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