Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
- You could lose all the money you invest
- Most debt security investments (loan notes and bonds) are in start-up businesses. Investors in these investments often lose 100% of the money they invested, as most start-up businesses fail.
- Advertised rates of return aren’t guaranteed. This is not a savings account. If the borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.
- While these investments can be held in an Innovative Finance ISA (IFISA) this does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential returns from your investment will be tax free.
- Simple Crowdfunding carries out limited checks on the businesses you are investing in, more details can be found in the Risk Statement. You should do your own research before investing.
- You are unlikely to get your money back quickly
- Even if the business you invest in is successful, it is unlikely that you will be repaid before the end of the specified term.
- If the business you invest in does not meet its targets, it may not be able to pay you on the scheduled dates. You may find that you do not have access to your funds until later than expected.
- The platform does not offer a secondary market. While another investor may be interested in buying your investment, there is no guarantee you will find a buyer at the price you are willing to sell.
- Don’t put all your eggs in one basket
- Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
- You are unlikely to be protected if something goes wrong
- Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
- Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here for information for consumers.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here for information on smart investments.
For further information about investment-based and loan-based crowdfunding, visit the FCA’s website here for information for crowdfunding.
Further details on the risks involved in investing through Simple Crowdfunding can be found here for simple crowdfunding risks.