The Boy Who Procrastinates (TBWP)
At the time when robo-advisory is making its way into mainstream investing, Singapore has witnessed a burgeoning peer-to-peer (“P2P”) financing industry which starts up an array of opportunities for traders eyeing an alternative income stream. In this specific article, I am posting my experience and figures after completing 100 loans with one of the P2P platform operators – Funding Societies (“FS”).
What is P2P Lending Platform? Putting it simple, P2P lending systems, performing as intermediaries, facilitate funding between lenders and borrowers. Lenders, in this scenario, make reference to retail investors as if you and me. For traders, P2P lending can present itself alternatively asset class on their portfolios with low least investment requirement and potentially high earnings. Borrowers, on the other hands, are mainly small and medium-sized companies (“SME”) seeking money for business needs.
Compared to traditional banking system, the P2P lending platforms offer quicker loan financing and acceptance process, allowing business to capitalise on short-term business opportunities. Furthermore, some of these SME may not have the security or credit standing essential for the eligibility of a bank loan. Currently, there are more than 10 such systems on the market.
Under the Securities and Futures Act, platforms that raise funds from the public through P2P financing are required to keep Capital Market Services licenses by the MAS. Business Term Loan: Unsecured loan products that are mainly requested by SME to expand their businesses, as well for the goal of project financing.
Tenure can range between 1 to 12 months. Invoice Financing: A form of short-term borrowing where SME sell their accounts receivable or invoices to boost their working capital. Unlike term loans which are unprotected, the invoice acts as collateral for invoice funding. Shorter loan tenure, generally range between 1 to 4 weeks.
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Property-backed Secured Loan: Loans used by SME which have pledged local properties as collaterals. Longer loan tenure mostly at 12 months. Revolving Credit Facility (“RCF”): Allows borrowers to consider multiple loans so long as it is at the tenure period or more to a pre-approved limit. RCF tenure can be up to 12 months. In the risk reward paradigm, invested money can offer higher profits only if the investor is willing to simply accept a higher probability of losses.
Therefore, it comes after that the expectation of profits should commensurate with the amount of recognized risk by an trader. For example, the property-backed secured loan generally offers a lesser interest as these loans are backed by assets which reduce the associated risk. As with any investment, performing the required homework is of paramount importance before committing your cash to it. That is especially so given that P2P lending is widely considered to be a dangerous investment product mainly because of the inherent credit risk associated. Even though FS does not regularly disclose the identity of the borrower, a loan factsheet will be provided prior to the commencement of the funding process invariably.
The document contains the necessary information on the loan, such as the repayment schedule, overview of the customer and its financial condition. These details allow investors to understand the borrowers’ financial health and to carry out knowledgeable investment decision for every loan accordingly. Like a creature of habit, I’ve recorded the important details for each loan periodically. This can help to offer an overview of my progress thus far and allows me to tally the amount of finance available in the FS account.