What are company investments?
When investing on Abundance you can choose to invest in companies or councils.
Company investments are a way to lend money to a UK company for a fixed period of time in exchange for a return on your investment.
Each investment will have its own return structure and repayment timings so it’s important to review each investment individually. Some investments will repay your original investment in instalments over the life of the investment while others will repay in one lump sum at the end (maturity) of the investment. Some investments will pay you interest 6-monthly, while others might ‘roll-up’ some or all of the interest and only pay it out at the maturity date.
You can review the structure of the payment terms for the investment in the Key Terms and Payments sections.
What are the risks of lending money to a company?
As you are making an investment your capital is at risk. This means you may not get back some or all of the money you invest and in the worst case you could lose all of the money you invest.
You are lending money to a company who will be putting your money to work, typically spending the money to develop a particular project(s) the company is working on. The company’s ability to repay your investment plus your return will depend on the overall success of its business. If the company runs in to difficulties, whether that’s cost increases, delays, lower revenues than forecasted or any other business disruption, it may not be able to repay you and the company could be forced to close.
The risks of the company being unable to repay you will depend on the particular business and the industry it operates in so it’s important to consider the specific risks of each company you choose to invest in.
As the investor, it is your responsibility to consider each investment and make your own assessment or ‘due diligence’ and consider all of the risks in the context of your own financial needs. When Abundance offers an investment on our platform it is not making a recommendation of that investment because we do not provide financial advice. If you are unsure about whether a particular investment is suitable to your needs you should consult a financial advisor.
Does investing through an ISA affect the risk of the investments you make?
When making a company investment on Abundance you can choose to invest through a Standard portfolio (a general investment account which is taxable) or through an innovative finance ISA (IF ISA), which is a type of ISA offered by Abundance.
If you choose to invest through an IF ISA with us, the returns on your company investments will be tax free. However, the IF ISA is just a tax-free wrapper or pot, and investing through your IF ISA does not change the terms of the company investments you are making. The choice to invest in specific investments is solely yours to make and the risks of that investment are the same as investing outside of an IF ISA, which means there is a risk that you could lose all the money you invest.
How can you reduce the risk when lending money to companies?
As our company investments are considered high risk investments, it’s important to only invest an amount that is right for you. A good rule of thumb is to only invest 10% or less of your net assets (your total savings and investments, not including your pension or your primary residence) into this type of investment.
Spreading your investment across a number of different companies and sectors will help diversify your risk and limits your overall loss if one of the companies you have invested in is unable to repay you.
Can you access your money once invested?
Company investments are fixed term investments, which means you are lending money to the company for a fixed period of time and therefore you won’t be able to access your money until the repayment date. In some cases the investment repays you in instalments so you will get back some of your money over time, but in other cases you will only be repaid in one lump sum at the maturity date.
When you invest in an open investment that is currently raising money, you have a 14 day refund period during which you can request a full refund. After this period your money is committed to that investment and your money is effectively lent out to the company and cannot be withdrawn. You should therefore only invest if you are prepared to hold the investment for the full period of the investment.
Can you sell your investment instead?
While you can’t withdraw your investment, your investment is fully transferable, which means it is possible to sell your investment to another investor if you need to get back some of your money before it is repaid.
Abundance has a marketplace when you can put your investment up for sale and see if another investor is interested in buying it. However if there is no buyer interested on Abundance, or if the trading of that investment on the marketplace has been suspended, you may not be able to sell your investment through the marketplace and may have to continue to hold it.
It is up to you to choose the price you want to sell your investment for and you can try to sell your investment for more or less than you originally invested. However if there are no interested buyers at your chosen price, you may need to sell your investment for less than you originally invested and therefore you won’t get back all of your money.
It is important to understand that there is no guarantee you can sell your investment, so you should invest on the basis that you are willing to hold the investment for the full life of the investment.
What are your protections if something goes wrong?
By investing in a company, you become a creditor of that company and the terms of your investment (in the Debenture Deed) set out the company’s obligations to you and what they are due to pay you back and when. However, repayment is not guaranteed and it depends on the company’s ability to meet the terms of your investment and make the payments owed to you.
If a company is unable to pay you as agreed, they will be “in default” of the terms of your investment. There are a number of options on what would happen next, for example the company could request more time or ask for a change of the terms of the investment (and there would be a formal voting process for that). However, If a company is unable to provide investors with a suitable proposal, or if the company is unable to continue and is in default of the terms of the investment, investors have the option to call an ‘Event of Default’ (this would also require a vote by investors). This would typically lead to an administrator being appointed to wind up the company, with the aim of maximising as much value as possible for creditors, including Abundance investors.
As an investment, there is a risk you could lose some or all of your money. The Financial Services Compensation Scheme (FSCS) or Financial Ombudsman Service (FOS) do not cover poor investment performance so if you make a loss due to a company’s inability to pay you back, you cannot make a claim to the FSCS or FOS.
As a regulated investment platform, it is possible to make a complaint against Abundance, however this must be in relation to the services we provide rather than due to poor investment performance. You can find out more here.
What is Abundance’s role?
Abundance has a role across the life of your investment but it is important to understand that when you are making a company investment, you are lending money to that particular company and it is that company that must make the payments due to you under the terms of your investment. You are not lending money to Abundance and Abundance doesn’t manage your investments for you.
Abundance acts as the arranger, agent and, in some cases, security trustee for your investment. Once an investment has been successfully funded our role is largely an administrative one, including:
Providing your online account which allows you to view your investment holding and provide services such as the marketplace.
Administering the payment of your investment returns back from the company to you.
Administering any communications from the company to investors.
Facilitating the exercise of rights by investors under the terms of the investment, for example, where investors are asked to vote on a change of investment terms by the company you have invested in.
For the investments that have security over some or all of the company’s assets, Abundance Security Trustee Limited holds the legal title to that security package.
What happens if Abundance goes out of business?
If Abundance were to go out of business, the company you have lent money to will still be obligated to meet the terms of your investment, so there would be no direct impact on your investment.
However the administration of your investment could be impacted, which could cause delays to the payment of your returns or your ability to view and manage your investments held on Abundance. As it is Abundance that provides the marketplace service, you may no longer be able to use the marketplace to look for a buyer which would significantly reduce your options to try and sell your investment if needed.
As a regulated company, Abundance is required to have a plan in place to allow for the orderly wind down of our business if we were no longer able to continue.