Dr Steve Walker has an investment opportunity for you that he thinks will prove attractive...
Steve – Chief executive of ART Business Loans – has launched a new shares offer to raise funds to finance loans to West Midlands- based small businesses and social enterprises – and if you invest and are a higher rate taxpayer, that investment could return up to 9.1% per annum for five years.
That’s a healthy return in the current investment market when compared to other possibilities open to you. The FTSE 100 Tracker reported a return of 6.5 per cent between December 2018 and December 2019 – not bad, but not brilliant either. But that’s better than you’ll find in the mainstream banking world: building societies are doing well if they offer anything above 3 per cent to tie your money in for years – and there’s tax to pay on the interest accrued.
And while poor, that’s miles ahead of the high street banks, even when compared with ISAs and five-year bonds.So against that backdrop, you can see why Steve reckons shrewd investors will jump at the chance of accessing that eye-catching 9.1 per cent return.
Even better, it’s a completely ethical investment in a social enterprise that helps start-ups and small but growing businesses led by entrepreneurs who often hail from the inner city and find themselves excluded from traditional avenues of financial support.
ART Business Loans has been operating for 22 years and has proved a great success, lending over £28m to West Midlands businesses. This equates to over 1,400 firms, and has created/safeguarded over 7.500 jobs. In 2019/2020 it expects to lend another £3m.
It’s that combination of a healthy return on your investment and the knowledge that your cash is used to back the growth plans of small businesses that has appealed to many prominent business leaders. One of those to back ART with his own cash is former BHSF chief executive Peter Maskell, who described the chance to provide capital to ART through the share offer as one “that makes sense as an investment. I get a good return from the tax relief and I know my money is being put to good use, helping to support the region’s small businesses,” while Greater Birmingham Chambers of Commerce chief executive Paul Faulkner described the decision to invest in ART as “a chance to support local business.”
Sounds good… so what’s the catch? IoD West Midlands had a chat with Steve to find out more
Q: If I invest in ART Business Loans, where does my return come from?
SW: “It doesn’t come from the performance of the businesses we offer loans to; your return comes via a form of tax relief called Community Investment Tax Relief (CITR). This was set up by the Government to create a tax-efficient way for individuals and businesses to help finance small and growing businesses in a socially responsible manner.
CITR provides a deduction from your tax bill every year for five years of 5% of the amount you’ve invested, which equates to a return of up 9.1% for the highest rate taxpayers (45% bracket).
The only requirement is that you have to keep your money invested for five years. At the end of five years, your money is returned to you in full, or you can re-invest it for another five years.
So how does that work in practice?
SW: If you invested £10,000 in ART Business Loan’s shares for 2019-20, you would receive tax relief of up to £500 every year against your tax bill – that’s £2,500 over the five-year period.
That’s an equivalent financial return of up to 9.1% per annum for five years for higher rate payers.
Q: Is this style of investment
exclusive to ART?
SW: As we said earlier, the Government created CITR to encourage investors to back small businesses, and there are a number of organisations that have used CITR in this way but mostly borrowing from banks. ART is the first to issue community shares and CITR linked to the British Business Bank Enterprise Finance Guarantee. ART’s share issue is run through the Ethex investment platform.
We offer a good return and you know that in addition to that, you are investing in the future of British business – that’s a win-win situation. For full details of how the investment works, see the ETHEX website at www.ethex. org.uk/ART2020.
How much are you looking to raise?
SW: We are looking to raise additional share capital of £500,000 by March 24, 2020; this money would then be used to support increased lending through 2020-2021.
Previously, ART Business Loans has raised in excess of £350k with the benefit of Community Investment Tax Relief (CITR) from individuals and companies and earlier in 2019 raised a further £250k with the benefit of CITR through a Community Share Offer using the Ethex platform.
What type of businesses do ART loans support?
SW: ART Business Loans focuses its lending on those who have been traditionally deprived of access to business finance, for example, enterprises geographically located in areas of disadvantage or led by Black, Asian and Minority Ethnic (BAME) people, women or disabled individuals. At least 75% of the businesses that ART Business Loans lends to fall into these categories.
When we started out the businesses coming to us for finance were mainly start-ups but that situation has changed in the past decade. We still have start-ups applying but increasingly, small businesses, many trading successfully for several years, have turned to ART after having either no luck with high street finance providers or being unable to source their full needs from the banks.
These are businesses looking to grow, to take on more staff or expand product lines and premises, and they struggle to find funders who will support their ambitions. As one loan applicant said to me recently, “the banks said ‘no’ to my request for a loan before I’d got my business plan out.”
It’s very frustrating, particularly because the market for peer lending is tight at the moment, too. That’s where we come in. We can offer the financial support businesses need – always provided that they can show us how the loan can be repaid. For our investors, that makes it a really positive decision that can be seen as delivering a ‘social’ as well as financial return.
Do investors have to be West Midlands based?
No. In previous years we’ve received as much interest from outside the region as within it; the appeal is the tax relief and the knowledge the investment is helping fledgling businesses.
What happens to the money I invest in the shares issue?SW: All the money invested in ART’s shares is used to make loans. ART’s experienced team views all requests from businesses and looks to support them financially if at all possible. We like to think ‘yes’ before we’re saying ‘no’.
Is my cash at risk?
SW: It is an investment, and so carries a modicum of risk, but your cash isn’t lost if an individual business goes bust. You are investing in ART, not the businesses we lend to. We work hard to ensure businesses that receive our loans are best placed to make it work for them. Our current Community Share Offer is backed in part by the Enterprise Finance Guarantee scheme and ART itself has reserves of around £1 million, both of which should provide comfort to any investors.
How easy is it to take advantage of the tax relief?
SW: ART Business Loans will issue a tax certificate to investors, which will include their name, address and size of their shareholding in ART Business Loans. A personal investor then claims the tax relief from HMRC through their self-assessment tax return for each tax year for which relief is due. If they do not normally complete a tax return, they will need to request one from HMRC.
A corporate wishing to claim relief should claim as part of its Corporation Tax return for each appropriate accounting period.