Family Firms Win Favour With Business Investors

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Family businesses are favourites for investors looking to take a stake in some of Britain’s most popular brands.

Nearly all of the country’s 5.2 million businesses are in the control of entrepreneurs and their families.

That includes some big names, like bakers Warburton, reputedly Britain’s second most popular brand behind the ubiquitous Coca Cola.

Family businesses are coming back into fashion because investors believe they operate a tighter ship than public enterprises and managers can move quicker to make decisions as they have fewer layers of management and administration.

A quick route into funding a private business is buying into a bond offer.

Private corporate bonds

Two places to look for bonds are the London Orb Market, which is linked to the stock exchange, and The UK Bond Network.

Bonds are attractive to investors for a number of reasons –

  • Investors can enjoy an immediate pension contribution relief upgrade as bonds can be wrapped in self-invested pension schemes
  • The rate of interest is generally higher than investing the same amount of cash in a bank fixed term interest account
  • Bonds give growth and income
  • The buy-in level is generally around £2,000 for a new issue
  • Many bonds are tradeable on the London market through pension platforms

How investing in corporate bonds works

A £2,000 investment in a corporate bond immediately gives a pension boost of £400 for a basic rate taxpayer and £800 for a higher rate taxpayer.

Investing the same cash privately or in an ISA will not attract the pension contribution boost.

The latest ORB bond was issued by Paragon, the financial firm mainly offering specialist buy to let mortgages to landlords.

The bond pays annual interest of 6% a year every six months – or £120.

Nevertheless, bonds are not for everyone. The Financial Conduct Authority (FCA) advises that only sophisticated investors with an income of more than £100,000 a year and a disposable net worth of £250,000 should buy into bonds.

Although the returns are good, the risk is also that the company issuing the bond can get into financial trouble and collapse, taking any investment down with it.

Bonds are effectively private loans to a company paying a guaranteed return over a fixed term. At the end of the term, the investors receive their investment back.

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