Cash management and peer-to-peer lending could boost your balance sheet

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Octopus Investments peer-to-peer lending

Having surplus cash is normally a sign of rude health, but it could be doing your business as much harm as good in today’s economic climate, writes Charlie Stoop of Octopus Investments.

With inflation on the rise but interest rates at an all-time low in the UK – and some high-street banks even raising the prospect of charging commercial customers to keep deposits – companies’ savings may actually be losing value in real terms.

Last year Grant Thornton reported that British firms were collectively holding £244bn on deposit (The UK’s Cash Conundrum, September 2016). This might seem a crazy state of affairs, but what’s the alternative?

You could always invest some of your firm’s excess cash in the equity markets, but their volatility is not for the fainthearted. Although past results aren’t a reliable indicator of future performance, 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, according to research by Lipper.

That represents quite a risk for businesses seeking a stable return.

If you’re a thriving enterprise that’s looking to put your balance sheet to work, you probably feel stuck between a rock and a hard place, with bank savings offering scant returns and stock investments presenting excessive risks. Surely there must be a better way?

If you can’t beat ’em, join ’em

Over the past few years a new way to potentially beat the banks has emerged – one that plays them at their own game. Called property-backed peer-to-peer lending, it gives companies the opportunity to be the lending bank themselves.

It involves one of the oldest asset classes around: loans secured against the borrower’s bricks and mortar. For firms prepared to take a degree of investment risk, it represents the chance to target higher returns than the interest they could obtain from bank savings, but without exposing themselves to the ups and downs of the equity markets.

One of the fastest-growing products of this type is Choice, offered by Octopus Investments, an experienced investment company that manages more than £6bn of assets. Choice helps clients to target an inflation-beating annual gross return of four per cent by investing in high-quality loans secured against property.

Committed to cash?

Peer-to-peer lending isn’t for everyone, of course. Some companies will be uncomfortable taking any risk with their surplus cash. In such cases, finding a smart cash-saving solution may never have been more important.

This is where so-called cash management services can help. By helping firms to find savings rates that beat those offered on the high street, they can offer some respite in an otherwise unforgiving climate for savers.

Take Octopus Cash, the new one-year fixed-term savings product, for instance. Working with a growing roster of challenger banks, Octopus can offer a savings product that currently provides an interest rate of more than one per cent.

At the end of the term, Octopus will automatically present clients with the best new rate available from the banks it has partnered with, helping them to earn a top-tier rate, year in, year out, without the hassle of ever having to switch provider themselves again.

No matter how much appetite for risk you have, it’s about time your company took control and stopped being burnt by its bank rate.

Charlie Stoop is part of the SME business solutions team at Octopus Investments

To find out more on cash management and peer-to-peer lending visit octopuschoice.com/iod or call a member of the Octopus team on 020 3142 4981

To view more Director blogs visit director.co.uk/blogs

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 and/or save with Octopus Cash. These are available at octopuschoice.com/risks, octopuschoice.com/terms and octopuscash.com/terms

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