Platforms now have to be authorised via the Financial Conduct Authority (FCA), and many of them allow their products to be put into an Isa, but the investments are not backed by the FSCS.
The danger is the possibility of the company or individual you have lent to goes bust, and there is no guarantee that you will get your money back.
Ms Bowes says: "An Innovative Finance Isa should be seen alongside a Stocks and Shares Isa, and you can have a very, very high risk Stocks and Shares Isa.
"Is it wrong to have a stocks and shares Isa?"
Ms Ingram disagrees and says anyone considering this type of investment would be better off looking at other regulated investments. She says: "If someone has capacity for loss and can take a lot of risk, I think they can use EIS [enterprise investment scheme] and VCT [venture capital trust].
"A VCT has many more controls and they all give you 30 per cent tax relief up front. If it turns out to be a complete loss, you can claim back relief on the loss.
"With Innovative Finance Isas, you only get tax relief on the gains."
Rate rise risks
Despite some misgivings, the sector has been so popular with investors that there is a wall of money waiting to invest in suitable investments, and not enough candidates wanting the money, especially on the investment crowdfunding side.
Another challenge on the horizon is rising interest rates. The platforms have benefited from a very low interest rate environment, but with the rate rise earlier this month, the consensus is that rates are only going in one direction.
Ms Bowes says: "What happens if interest rates rise and people can no longer pay back their debt? You might start to see more and more defaults.
"It's my concern that this industry has exploded in a low interest rate environment. While we won't see rates rising to the levels of 10 years ago, I still think it's a potential issue.
"People could suddenly find themselves in trouble because debt has become more expensive; if they have a mortgage and they have business based on borrowing, it's more expensive to pay back their debt."
The FCA is also getting involved, clamping down on some aspects of what it deems to be poor practice, and lack of clarity over the risks people are taking.
The following articles will show in more detail how alternative finance works, what the risks are and how to pick the most suitable platform.
