Frequently asked questions






General


Who are Capitalstackers

Capitalstackers Ltd is the company set up to create and manage the CapitalStackers platform.  It is owned and run by people with a breadth of experience in real estate finance. A key shareholder is Hallidays Chartered Accountants and directors of Hallidays also sit on the board of CapitalStackers.


Who are the Capitalstackers trustees?

Capitalstackers Trustees Ltd ("CTL") has been set up for the sole purpose of independently looking after the security interests of CapitalStackers investors. CTL acts as security trustee on all deals entered into by the investors. The board of CTL is controlled by Hallidays directors


Who are Hallidays?

Hallidays is an independent firm of chartered accountants with a significant shareholding in CapitalStackers. Directors of Hallidays are also the controlling directors of Capitalstackers Trustees Ltd. 


What is the role of CapitalStackers in the investment process?

CapitalStackers' purpose is to bring together borrowers (generally those seeking a higher level of funding than is offered by the banks) and investors seeking a higher rate of return on their money than is available elsewhere.


Is loan-based crowdfunding / CapitalStackers regulated?

Yes.  CapitalStackers is authorised and regulated by the FCA to operate its loan-based crowdfunding platform.  Please note that crowdfunding is not covered by the Financial Services Compensation Scheme.


Why should I invest through CapitalStackers?

CapitalStackers provides you with the opportunity to invest directly in real estate transactions, diversify your risk and tailor your returns to match your risk appetite.  Depending on your risk appetite, returns can be from as low as 5% to in excess of 20%.  Furthermore, your investment is secured against the underlying property assets being financed.



What are the criteria for becoming an investor?

The minimum level of investment is £2,500 and investors need to self certify that they both understand and accept the risks associated with this form of investment. Prior to you becoming a member of the CapitalStackers platform, the standard financial services Know Your Customer (KYC) checks need to be concluded. Investors do not have to be UK domiciled but they do need to have a UK bank account. We are unable to operate accounts for USA nationals.


What types of investment opportunities are available via CapitalStackers?

Many types of real estate investment and development (including residential development) opportunities are available. Each scheme will be "stand alone", with a discrete set of investors, pricing and risk parameters. You therefore have the opportunity to build a portfolio with a range of assets which suit your specific requirements.


What are the minimum and maximum amounts I can invest?

The minimum investment is £2,500, although some deals will have a higher participation threshold.  There is no maximum - however, the FCA recommends a cap on investment be applied to Restricted Investors (i.e. individuals who are neither High Net Worth nor Sophisticated.


Should I seek professional advice before investing?

We do not provide investment advice. You should consult an Independent Financial Adviser if you are in any doubt regarding investment through the CapitalStackers platform.


Do investors remain anonymous?

Yes, investors remain anonymous from each other and the borrower.


Does CapitalStackers offer the IFISA?


Not yet. However, we have scheduled a launch of the CapitalStackers IFISA in Q4, 2022. 


Can I invest through my company?

Yes.  You can invest through a company, a limited liability partnership or your firm.


Pensions


Can I invest through my pension?

Yes, in most cases. Lending for residential investment is not allowed under HMRC rules although loans for residential development and any commercial property are permitted. Care should be taken to sell your participation in a residential development loan should the borrower decide to roll the loan into an investment in the absence of selling the completed property.

Crowdfunding is classed as a non-standard asset by the FCA for Self Invested Personal Pensions (SIPPs) purposes. You are likely, therefore, to encounter resistance from most SIPP providers.

If your pension fund is a Small Self Administered Scheme ("SSAS") we have relationships with pension providers who have pre-approved CapitalStackers as a qualifying asset class. See our "Invest Through Your Pension" page.


What conditions are imposed by HMRC?

We do not provide investment or taxation advice and you should refer to your IFA or tax adviser as necessary. That said, we do know that you risk incurring a significant tax charge in the event your pension is used to fund any of the following:

Loans to individuals. You should only lend to trading businesses, not individuals. Although lending to individuals on the CapitalStackers platform is rare, such deals are hidden from pension lenders.

Loans to a connected party. Generally, this would be a family member or a business colleague. Essentially, any loans you make should only be to third party borrowers wholly unconnected to you or your business.

Loans for the purpose of residential investment. However, you are permitted to lend on residential developments. You need to be aware there is a possibility that a residential development might be deemed by HMRC to have become a residential investment property if it could be used as a dwelling. The rules were written before the advent of crowdfunding and in that regard lack much needed clarity which is being sought by crowdfunding platforms. In the meantime, you should take care to monitor your residential development loans and seek to exit your participation prior to the point at which the security could be deemed to be a dwelling. In this regard, the following HMRC guidance is relevant:

“The definition of residential property is a building or structure that is used or suitable for use as a dwelling. It does not therefore apply to property, including land, which is not residential property when the investment-regulated pension scheme acquires it. But the building or structure may become residential property whilst owned by the pension scheme as a result of being subsequently subject to development.

Whilst it is in the course of construction, conversion or adaptation such land and property is not residential property because during that period it is not suitable for use as a dwelling. Land and buildings being converted are treated as residential property from the point when they become suitable for use as a dwelling. In any specific case this point should be determined by taking a common sense approach to the facts and circumstances.

Essentially the question to be answered is: would a person normally live in that dwelling? The point at which this occurs will normally be when the works are substantially completed. In the case of UK property this is likely to be when the certificate of habitation is issued. A property that is sold before the development or conversion is substantially completed never becomes residential property.”

Each type of loan is categorised separately and residential investment loans are hidden from pension lenders.

When setting up your account with us you will be asked to confirm that you understand the implications of lending to these types of borrower.


Protection


What controls do you have in place to protect investors?

CapitalStackers is authorised and regulated by the FCA although loan-based crowdfunding is excluded from the Financial Services Compensation Scheme. On every deal, we use a combination of our rigorous initial due diligence and detailed ongoing risk monitoring which is shared with investors. On every scheme, the security over the land and property being funded provides you with tangible protection. Moreover, on every deal our margin fees are only paid out once our investors have been fully repaid with interest. We are therefore only ever going to publish deals in which we have total faith. To do otherwise would not only damage our reputation but cost us financially.


How is my money protected after being received by CapitalStackers but prior to being invested?

CapitalStackers operates within the terms of the FCA client assets rules. Your money is held in your personal eWallet. All client eWallets are personal to the investor, each with a unique sort code and account number. Funds in an eWallet can only be used to participate in CapitalStackers deals or returned to an investors registered bank account. Meanwhile, they are monitored by our payment services provider, held and safeguarded by an Authorised Electronic Money Institution (AEMI) – so they can’t be accessed by anyone but the account holder.


What level of analysis do you undertake prior to publishing an investment opportunity on the CapitalStackers website?

A rigorous due diligence process is undertaken on any new investment proposition and the results of both the initial and ongoing analysis are posted in the deal room. The analysis includes, but is not limited to, checks on: borrower experience, property comparisons and financial modelling of loan to value and interest cover sensitivity. External professional advice is sought on all deals. CapitalStackers is managed by a team well experienced in real estate lending analysis. Proposals that do not meet our minimum risk quality threshold will be rejected.


Return


How is the interest rate paid on my investment negotiated?

The coupon payable by the borrower will be negotiated by the CapitalStackers team and determined by competition, the perceived risks associated with the deal and the borrower's appetite. It's essentially the market rate. This rate becomes the borrower's target rate and includes the investor return and CapitalStackers' margin fee. Simply put, we 'skim' the rate payable by the borrower and offer the remaining interest to the investors and our 'skim' is paid only after the investors have been paid. Therefore, the borrower pays CapitalStackers and the return quoted to investors is their actual return - there are no fees paid by the investor.

All deals are subject to auction with the eventual pricing then being determined by investors. If there is high demand, the rate will fall. Conversely, if demand is low, investors will have the ability to bid the rate up. We have a safety mechanism in place so that the rate cannot be bid down to a level where it would look out of kilter with the risk. In the event that investors drive the rate higher than the target rate, the borrower has the option of withdrawing or accepting the higher rate. In these circumstances we would reappraise the deal on the basis of the higher pricing so that investors can confirm their bids in the light thereof.

So whilst CapitalStackers brings borrowers and investors together, the pricing is a function of market forces coupled with what both parties are willing to accept.


How are the returns calculated and paid?

The Current Coupon on investment loans will be calculated and paid in full on an ongoing quarterly basis where sufficient cash flow is available or rolled up and paid in full at maturity of the loan together with any Deferred Coupon if applicable. All development loans are subject to a Deferred Coupon compounded monthly, rolled up and payable at maturity of the loan.

For ease of comparison, in addition to the Coupon, we display the Internal Rate of Return (IRR) which is the annualised return taking into account compounding. All returns are shown gross of tax.


What is the tax position on the interest paid?

Investment returns are shown gross of any tax deduction.

CapitalStackers will pay interest gross and provide investors with statements of the interest received. Tax payers are obliged to declare this income to HMRC.

If you buy or sell in the secondary market and the transaction includes a premium or discount to the face value of the loan including interest to date, there will be a capital gain or loss which should also be reported to HMRC.

Note: Investment through CapitalStackers is only available to those with a UK bank account.


How quickly will my investment start to earn interest?

As the opportunities offered by CapitalStackers are project specific schemes, we anticipate that cash will be invested relatively quickly. Nevertheless, all schemes will be subject to due diligence and until this is complete and the borrower's equity invested, no drawings will be made. We endeavour to assess a realistic timescale for drawings within our initial appraisal. It is worth noting that we only ask you to remit your funds for investment at the final stage of due dilgence.


What does it cost?


Is there a joining fee?

Not at the moment. However, we reserve the right in future to levy a small administration charge to cover the costs of KYC checks.  Investors pay no other fees or ongoing management charge.


How does CapitalStackers make its money?

Just as would be the case if a borrower were to transact with a bank, borrowing fees are rolled into the deal and paid by the borrower. The CapitalStackers margin fee and (if applicable) exit fee are only payable upon the successful completion of the scheme once our investors have been paid out in full.

In the same way that you would pay a stockbroker for selling your shares, we may charge commission for selling loan participations through our secondary market. Details of these transaction charges are published in the membership area. Currently, secondary market transactions are commission free.


Investment Process


How does the bidding process work?

We have two types of auction. Primary Market auctions apply to newly posted deals and are published by CapitalStackers for a set period.  Investors bid against each other, with winning bids being determined as the lowest rates at the conclusion of the auction.

There are two types of bid in the Primary Market. A Non-Agreed Bid is where investors win by offering the lowest rate and so are subject to being outbid at any time up to the auction close. Alternatively, an Agreed Bid can be made at a discount to the Borrower's target rate or the market rate if lower.  The Borrower benefits from a lower-than-market rate whilst the investor benefits by not being subsequently outbid, even if the market rate drifts lower than this Agreed Bid.  Auctions can be wholly competitive with Non-Agreed Bids only; partly competitive where both Agreed and Non-Agreed Bids are enabled; or, non-competitive where the same rate applies to all investors and winning bids are selected on a 'first past the post' basis.

There is no bidding in the Secondary Market. A seller will simply publish the amount they wish to sell and the rate they are willing to offer the buyer. 

second type of auction applies to the Secondary Market where an investor chooses to post a participation in an existing deal and other investors compete in terms of how much they are prepared to pay for that investment given it will definitely include rolled up interest in the case of a development and potentially include rolled up interest in the case of an investment loan.  We provide calculation toolkits so that the seller and purchaser are able to see their respective returns based on the amount paid.  Secondary Market transactions are strictly between investors and do not involve the Borrower.



The CapitalStackers team will meet with all borrowers whose schemes are promoted, visit the property(ies) to be funded and liaise with the senior debt provider. The profile of the borrower built up from such enquiries will be shared with investors as part of the due diligence process. As with investors, Know Your Customer checks will also be undertaken on all borrowers.


Do I need to provide funds up front?

CapitalStackers is the only platform not to insist on cash being deposited by an investor prior to making a bid. Some think this is a bold move and will only lead to problems when it comes to completing the deal. We take a different view. Real estate and the finance of it is a capital intensive activity - hence the reason behind our minimum investment criteria. We believe there will be a natural reluctance by our investors to tie up their existing cash (perhaps having liquidated other investments) until such time as they are reasonably sure it will be deployed, especially when they are bidding significant sums and where they might be subject to being outbid. In completing a deal we also have to go through a due diligence process once the funding has been secured so there is a natural period during which we will ask our investors to remit the funds in readiness for completion. Therefore, we will issue a funding request towards the end of the due diligence period with a polite request for prompt payment.


Where is my money held pending investment?

Your cash is held in your personal eWallet, protected by your own unique sort code and account number. Funds in an eWallet can only be used to participate in CapitalStackers deals or returned to an investors registered bank account. Meanwhile, they are monitored by our payment services provider, held and safeguarded by an Authorised Electronic Money Institution (AEMI) – so they can’t be accessed by anyone but you.


Can I change my mind?

No. Once your bid has been accepted, you are committed to the deal.


Will my investment be secured?

Yes. All investments will be secured against the underlying property asset(s). Generally this will be a second legal charge ranking behind the senior lender but in some circumstances will be a first legal charge. In certain instances personal or corporate guarantees may also be sought from the borrower.


Who appoints the solicitors, valuers and other professionals and who will they be?

Professionals will be appointed by Capitalstackers Trustees Ltd (as security trustee). This appointment will be arranged through CapitalStackers under the service agreement. Sometimes such appointments will be made jointly with the senior lender but we will ensure that the interests of investors are protected at all times. Investors' legal interests will be safeguarded by Taylors, a highly regarded firm of Manchester lawyers who have agreed a service contract with CapitalStackers for the provision of legal advice and documentation services. The CapitalStackers team have strong relationships with a wide range of the most significant property advisers. Valuers and other professionals will be appointed as required. Details will be provided as part of the due diligence process and professional reports will be available for viewing in the deal data room.


How will I know how risky the proposed investment is?

We will provide comprehensive information on each deal and detail the associated risks. You will also be able to get a feel for the appetite of your co-investors through feedback from the auction area. However, the ultimate decision as to whether or not to commit is for you (and, where appropriate, your advisers).


What happens if the deal changes after my bid has been accepted?

The legal and valuation due diligence process will often throw up minor variations to a published deal. These variations will be assessed by the CapitalStackers team and communicated to the investor group. Should any variation result in increased investor risk, the opportunity to confirm a participation or withdraw will be given to all investors. If necessary, the deal will be repriced and republished.


How do I monitor progress of the investments I have made?

Regular update reports - incorporating any professional input (e.g. from the monitoring surveyor) - will be posted in the deal room and data room to allow you to monitor progress.


Can I authorise my IFA / professional adviser to access my account?

Yes. When registering with CapitalStackers (or subsequently), you have the option to provide your advisers with either full execution authority or read-only access. Execution access will be conditional on the advisers also completing the KYC process and Appropriateness Test.


Repayment


Can I get repaid early?

Yes, a secondary market is available through which you will be able to liquidate your investment. However, early repayment cannot be guaranteed, as selling on the secondary market will require an investor willing to acquire your participation.


Wind down


What happens if CapitalStackers ceases to operate?

Naturally, this is the last thing on our minds, but prudence demands we address it (and so, incidentally, does the FCA). It is entirely possible that unforeseeable circumstances might arise which demand we protect our investors by implementing an orderly wind-down of our activities.

You can take comfort from the fact that we have a formal agreement in place with Hallidays Chartered Accountants and CapitalStackers Trustees Ltd (over which Hallidays has full control), detailing a comprehensive plan to deal with this situation.

Any loan you make through the platform is governed by an agreement between CTL (acting on your behalf) and the borrower (i.e. the developer / property investor). Your lending relationship with the borrower will therefore survive whatever happens to the CapitalStackers platform. And since the majority of CapitalStackers’ income is paid at the end of the deal, the costs of winding down the portfolio are already covered.

So, to be absolutely clear on this point - in the unlikely event that the platform ceased trading, your interests will be safeguarded to the conclusion of the deal by a long established and highly regarded professional firm.


How do I get further information?

If you have a question about something not covered in these FAQ, the Glossary or the webpage content, please contact us using the email link below. Or call us.




General


Who are Capitalstackers

Capitalstackers Ltd is the company set up to create and manage the CapitalStackers platform. It is owned by people with a breadth of experience in real estate finance. A key shareholder is Hallidays Chartered Accountants and directors of Hallidays also sit on the board of CapitalStackers.


Who are the Capitalstackers trustees?

Capitalstackers Trustees Ltd ("CTL") has been set up for the sole purpose of independently looking after the security interests of CapitalStackers investors. CTL acts as security trustee on all deals entered into by the investors. The board of CTL is controlled by Hallidays directors


Who are Hallidays?

Hallidays is an independent firm of chartered accountants with a 20% shareholding in CapitalStackers. Directors of Hallidays are also the controlling directors of Capitalstackers Trustees Ltd. 


What is the role of CapitalStackers in the borrowing process?

The purpose of CapitalStackers is to bring together borrowers (generally those seeking a higher level of funding than is offered by the banks) and investors.


Is loan-based crowdfunding / CapitalStackers regulated?

Yes.  CapitalStackers is authorised and regulated by the FCA to operate its loan-based crowdfunding platform.


Why should I borrow through CapitalStackers?

CapitalStackers provides you with the ability to leverage your projects, make your equity go further and significantly enhance your project IRR.


Considering borrowing


What are the criteria for becoming a borrower?

You must be experienced in real estate and have a sensible funding requirement.  Assuming you have equity available to support the deal, that the proposal meets our lending criteria and an appropriate pricing structure can be agreed, CapitalStackers will produce a report detailing the key elements of the transaction for inclusion on the platform. Prior to you being accepted as a borrower, the usual Know Your Customer (KYC) checks will need to be concluded.


What are the minimum / maximum amounts I can borrow?

There are no minimum or maximum criteria although the pricing associated with listing a deal less than £500,000 may make the borrowing costs less attractive. We do not undertake any lending activity which is regulated under Consumer Credit legislation.


I am an individual sole trader. Can I borrow?

Yes.  Individuals, partnerships, companies, LLPs and pension funds may seek funding through CapitalStackers subject to the funding request falling outside Consumer Credit legislation.


What information do you provide about the investors?

None. Investors remain anonymous throughout the process.


Do I need to have my senior debt in place before approaching CapitalStackers?

No. We have established relationships with and are happy to work alongside high street banks, challenger banks and debt funds. We can advise you on the most appropriate debt structures and can help source the senior debt funding on your behalf, advising you on the senior terms and conditions as appropriate. If your senior debt funding has already been arranged, we will work with your appointed lender in agreeing appropriate security and documentation arrangements.


Costs


What fees will I pay to CapitalStackers and when?

Fees are negotiated on each deal appropriate to the risk and are covered in the Borrower Fees and Interest section of the CapitalStackers website.


How is the interest rate I pay set? Is this rate fixed?

The interest rate (coupon) you pay will be agreed with you at the outset and is fixed until maturity (assuming there are no subsequent variations to the deal).  You pay a fixed rate and the lending investors receive a fixed rate for the duration of the loan.

What other fees will be payable?

These will be discussed and agreed with you at the outset. Other fees will include all third party costs (valuation, legal, etc) plus a fee for arranging and advising on the senior debt should you ask us to do that.


Borrowing process


How long will it take to complete the loan?

This will be discussed at the outset but will depend (amongst other things) upon the size and complexity of the transaction, whether senior debt has already been agreed, legal and valuation issues and the nature and extent of due diligence that will be required. As far as fund raising from investors through our Primary Market is concerned, we anticipate the process will take approximately two weeks. Quicker for smaller, lower risk deals and possibly longer for more complex larger deals.


What level of equity will I need to provide?

Again something to be discussed at the outset. Whilst not prescriptive, it is anticipated that you will be contributing a minimum of 10% of total costs in advance of the drawing of any CapitalStackers funding. This could be by way of cash equity or the injection of land or property. It is important that the investor group see you injecting a meaningful stake into the deal.


How do I monitor the progress of the auction?

You will have access to the deal room and full visibility of the auction process. We will keep you advised of key milestones.


What happens if CapitalStackers' investors are unwilling to fund the full amount required?

Should demand for your deal fall short of your required target, we will discuss the position with you and explore an alternative strategy. For example, you might offer a slightly higher coupon to attract more investors or temporarily contribute additional equity. The additional equity could be injected as a loan participation and liquidated over a period in the secondary market.


Is there a set repayment period? How are loan repayments calculated? Can I repay my loan early?

Each scheme will be individually structured and all will have a set maturity date.  Development loans will roll up interest.  Investment loans will call for interest to be paid quarterly with, in some circumstances, capital repayments. The option to repay loans early is available but may be subject to an early redemption fee.


What happens if circumstances change or costs increase?

This would inevitably require detailed discussion between you, the senior lender and ourselves. Any remedial action or restructuring arising from a breach of loan covenant will require the consent of the CapitalStackers investors.


External Professionals


Who appoints the solicitors, valuers and monitoring surveyors and who will they be?

Professionals will be appointed by CapitalStackers. Capitalstackers Trustees Ltd (as security trustee) will benefit from a duty of care under the appointment. CapitalStackers' legal work is undertaken by Taylors, a highly regarded firm of Manchester lawyers who have agreed a service contract with CapitalStackers for the provision of legal documentation and advice. The CapitalStackers team has strong relationships with a wide range of property advisers and valuers. Other specialist advisers will be appointed as required. We will agree fee arrangements with you prior to instruction.


Monitoring


What ongoing monitoring takes place?

CapitalStackers will be required to provide regular reports to the investors (monthly for developments, quarterly for investment loans). This will necessitate frequent discussions with you and for you to provide information relevant to the deal. The type and frequency of this information will be deal specific and usually detailed at the outset.


Further questions


Is there a joining fee?

Currently, only a small administration charge to cover the costs of KYC applies. Borrowers pay no setup fees or ongoing management charge other than is covered in the loan agreement specific to the deal being funded.



What you need to know