Certain Bridge Limited is offering unregulated loan notes paying up to 17.5% per year as follows:
- Bronze: Interest payments of 6.86% per year, paid six-monthly, for a 2.5 year term.
- Silver: Interest payments of 8.96% per year, paid six-monthly, for a 3 year term.
- Gold: Interest payments of 10% per year, paid six-monthly, plus an extra 10% on maturity, for a 4 year term.
- Platinum: Interest of 6% per year in years 1-2 and 8% in years 3-4, plus an extra 32% on maturity, for a 4 year term.
- Platinum Plus: Interest of 3% in year 1, 4% in year 2, 5% in year 3 and 6% in year 4, plus an extra 52% on maturity, for a 4 year term.
All loan notes have a minimum investment of £15,000, except Platinum Plus which has a minimum of £50,000.
The concept behind Certain Bridge’s unusually complex payment structure for the Gold, Platinum and Platinum Plus is simple to understand: investors receive a higher rate of return for deferring more of their interest to maturity.
What does not help investors compare the plans is that Certain Bridge provides IRR (Internal Rate of Return) figures for their loan notes which are simply incorrect. Certain Bridge claims annual IRRs of 12.5%, 15% and 17.5% for their Gold, Platinum and Platinum Plus loan notes respectively. These have been derived by taking the total amount paid over the term (50%, 60% and 70%) and dividing by the number of years.
This is not the correct way to calculate IRR. IRR takes into account the time value of money, i.e. the fact that money in your pocket earlier is more valuable than money later, because you can reinvest or spend it.
The correct IRRs for the Gold, Platinum and Platinum Plus notes are 12.4%, 13.6% and 14.9% respectively, which can be easily verified in Excel or any other IRR calculator.
While Certain Bridge’s literature has been approved by an FCA-authorised company (Equity for Growth (Securities) Limited), the investment itself is unregulated, being a loan note issued by a non-FCA-authorised company.
Who are Certain Bridge?
No details of who is behind the business are provided by Certain Bridge’s website.
Companies House shows that Certain Bridge is controlled by its two directors, Charles Oates (full name Beverley Charles Oates) and Gary John Hall.
Certain Bridge has yet to file accounts as an actively trading company. Its last accounts (up to April 2018) were filed as a dormant company.
How safe is the investment?
Certain Bridge is heavy on the use of the word “secured” and its derivations in its literature.
On the front page of its website, it manages to use the word “secured” or “securely” four time with absolutely no reference to risk.
Certain Bridge is issuing a number of high returning Secured Loan Notes.
Funds resulting from the sale of all of Certain Bridge’s high returning secured Loan Notes will be deployed swiftly by Certain Bridge to start earning high interest by lending funds fully secured against U.K. real property specifically for short term Business Bridge lending to U.K. borrowers.
Funds will be placed in a pool of funds along with funds from other Loan Note purchasers and these funds will be securely loaned to a number of different business bridge borrowers.
It is important that investors understand that these are unregulated loan notes and if Certain Bridge is unable to make sufficient returns from its bridging loans, or for any other reason runs out of money to service its bonds, investors risk losing up to 100% of their money.
Certain Bridge’s claim that its loan notes are “secured” rests on the assertion that when it lends investors’ money to a company, it takes security over that company’s assets with a low loan-to-value ratio.
Investors should bear in mind that it is not enough for Certain Bridge to get its money back from its bridging loans. It needs them to pay Certain Bridge sufficient interest to allow Certain Bridge to consistently pay up to 17.5% a year (simple interest basis) to its investors, while meeting its costs.
Secured lending is not risk-free as there is also the risk that if the underlying borrower defaults, the security cannot be sold for enough to cover the loan.
Investors in asset-backed loans have been known to lose 100% of their money when it turned out that there were not enough assets left to pay investors after paying the insolvency administrator (who always stands first in the queue).
We are not in any sense implying that the same will happen to investors in Certain Bridge, only illustrating the risk that is inherent in any loan note even when it is a secured loan.
If investors plan to rely on this security, it is essential that they hire professional due diligence specialists (working for themselves, not Certain Bridge) to confirm that in the event of a default, the assets of Certain Bridge would be valuable and liquid enough to compensate all investors.
Certain Bridge claims in the “Review” section of their website: “Certain Bridge is NOT a start up in the traditional sense, Certain Bridge are not raising capital by issuing equity as this would not provide any security or fixed interest coupons for the purchaser / holder.”
As Certain Bridge has been trading for less than a year, it most definitely is a startup company by any sensible definition. Why Certain Bridge feels it needs to reject the “startup” label is not clear. The second part of the sentence has nothing to do with the first.
Certain Bridge also claim “Realistic Returns Throughout – Certain Bridge are not enticing you with suggestions that your Loan Notes will increase tens or hundreds of times over in the next 2 to 5 years as is the case with many share offerings or offerings of unsecured Loan Notes with seemingly attractive attaching conversion rights.”
Contrary to Certain Bridge’s claims, very few companies offering equity or loan notes claim that investors will multiply their money hundreds of times over in 2-5 years, as any company that did so would be a blatant scam. Promoting yourself on the basis that you’re not a blatant scam assumes rather low expectations on the part of investors. It’s a bit like setting up a café and putting up a sign outside which says “Drink our coffee – it’s not poisonous!”
Certain Bridge is not a blatant scam as returns of up to 17.5% per year (simple interest) are theoretically possible – but with a high potential for capital loss which is not sufficiently prominently highlighted by its investment literature.
Should I invest in Certain Bridge?
This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.
As with any individual loan note in a new startup, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.
Any investment offering yields of up to 17.5% a year (simple interest basis) should be considered extremely high risk. As an individual, illiquid security with a risk of total and permanent loss, Certain Bridge’s loan notes are much higher risk than a mainstream diversified stockmarket fund.
Before investing investors should ask themselves:
- How would I feel if the investment defaulted and I lost 100% of my money?
- Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
- Have I conducted due diligence to ensure the asset-backed security can be relied on?
The investment may be suitable for high net worth and sophisticated investors who will already be well aware of all of the above risks, are looking to invest a small part of their assets in corporate lending, have done sufficient due diligence, and feel that the return on offer is sufficient for the risks involved in lending to a new startup company.
If you are looking for a “secured” investment, you should not invest in unregulated corporate loans with a risk of 100% loss.