20Nov
Becoming the Bank – by Jon Bennion-Pedley
Many, in fact most, of Investment Owl´s clients now act as the bank – and reap the benefits that used to be restricted to the bankers. The world of finance has changed beyond measure and, structured correctly, small and medium investors are the big winners.
The principle behind banking is very simple – if not very principled! The banks hold your money and pay you a fairly low rate of interest. They then lend your money at much higher rates to other customers. Simples.
In the UK the banks will pay you a deposit rate of less than 2%. They will lend your money out to other personal customers at between 3% and 10%. And they will lend to businesses at between 12% and 22% for short-term borrowing. They will also retain the right to take the money back at any time – whether a business can afford to repay it early or not. It´s very much a “heads I win and tails you lose” deal. They will rarely lend a business more than 70% against an asset and will never lend more than 50% against land.
Over the years most of the banks´ most profitable lines – for example foreign exchange, mortgage lending, international transfers etc. – have been taken away by companies that do them better, cheaper and more efficiently. Providing short-term (bridging) finance to good businesses with substantial assets under bullet-proof contracts is another area where we can do it better and cheaper than the banks – and still make a good profit.
It works like this:
· We find businesses in developed economies that want short-term finance
· We do the due diligence and get an independent valuation of the assets that secure your investment
· An independent security trustee is appointed to hold the borrower´s assets until the investor is repaid
· We agree an interest rate of between 10% and 18% per annum
· The money is transferred and the loan begins
· 12 months later capital and interest are repaid in full
Our investors act as the bank, have the same security as the bank, and take profits just like the bank does. The business borrows whatever percentage they need, over a fixed term, at a lower rate than the bank would give them for this type of finance.
If you would like to know more about this kind of win-win partnership then drop me an email – jon@investmentowl.com or give me a call +256 (0) 312 538 531
Written by Jon Bennion-Pedley
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