SME Digital Financing Platform
With 226,000 enterprises in Singapore in 2020, there is great demand in the market for business loans, ranging from short to long term loan preferences. However, many Small and Medium Enterprises (“SMEs“) have a brief operational or credit history, yet seek faster loan disbursement rates and a shorter term loan. These factors make bank loans from traditional financial institutions difficult to obtain.
To help this group of businesses, digital financing platforms such as Funding Societies assist to connect borrowers directly with investors without going through a traditional financial intermediary. This not only allows for SMEs to obtain the loans they require, but also opens windows of opportunity for investors who may be looking to diversify their portfolio across asset classes.
With debt investments, investors are able to invest by funding the business loans listed on these financing platforms, and potentially earn returns in the form of interest when the loan is repaid. The repayment schedule is frequent (monthly or within 90-120 days) and may be a supplement to more traditional long term asset classes like stocks or bonds. Investment capital is also much lower than other investment instruments, at as low as S$20 with Funding Societies, which lowers the threshold of entry for new investors.
Benefits for SMEs
As an alternative source of business financing for SMEs, SMEs on the digital platform will get to experience increased efficiency in loan processing for their working capital and expansion needs. Business loan applications with Funding Societies may be approved and disbursed in as quickly as 24 hours. This helps to improve the cash flow of our clients’ businesses and draws SMEs with urgent funding needs to Funding Societies for loan assistance.
Benefits for Investors
As an alternative source of financing for SMEs, investors on the digital platform will be investing in debt-based funding, a concept that sees investors lending to borrowers (i.e. SMEs) via the platform as a form of investment, and earning the interest from the repaid loan as their returns.
Funding Societies has an Auto-Invest function that allows for portfolio diversification of investments, should an investor wish to diversify their portfolio. The platform also does a preliminary round of due diligence to provide facts comprehensively to aid in investor decision making on whether or not to proceed, and also mitigates risk by engaging an independent escrow agent to handle all investor funds separately from the company’s business accounts. This ensures that the escrow agent can continue to manage funds even if the platform goes under, thus providing a peace of mind to investors.
Risks of Debt Investing
As with all debt, the collection of interest depends on the repayment. Thus, there is a need for investors to perform their due diligence to ensure that these investments match their risk appetites.
Although debt investing is still a fairly young industry in Singapore, demand for these platform services are on a growth trajectory. Funding Societies serves both the needs of SMEs and investors in Singapore, with the mission of closing the US$300 billion SME financing gap in Southeast Asia while growing the wealth of investors.
Disclaimer: Please note that the information within this article is meant purely for informational purposes and should not be relied upon as tax, legal, accounting or financial advice.
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- SME Digital Financing Platform – What is Debt Investment? - January 26, 2022