If you own a small, growing enterprise, getting funding from your peers through peer-to-peer (P2P) lending can be a great substitute to applying for a bank loan. On the other hand, if you are an investor, P2P lending can be a great way to earn returns while helping out SMEs. The system increases returns for the investor, and decreases restrictions for SMEs and borrowers, by withdrawing traditional middlemen from the process.
It has heralded a new era of FinTech, where collaborative funding has helped small businesses in their growth and development. P2P lending platforms use big data and advanced analytics to bring together investors and borrowers.
While a lot of articles talk about the benefits of P2P lending for SMEs, there are also many advantages of being a P2P investor. Read on to find out more:
1. Handsome return on investment
The returns in P2P lending depend entirely on the risk profile of various loans. The relation between risk and returns makes it easy for investors to choose where to put funds based on their risk appetite. Keeping all the factors in mind, a high return rate hovering around 10% in today’s market is very attractive for any investor.
2. Spreading risk
With the rise of P2P lending, you get another opportunity to diversify your investments so that the overall portfolio is diversified. Moreover, you can also decrease risks by investing in funds that have a safer credit rating. You can also reap the benefits of diversification within the P2P lending model itself.
By financing 4 people with SGD 100 each, you can spread out the risk that your SGD 400 fund will be defaulted on and protect your rate of returns
3. Steady source of income
For small businesses and SMEs, an efficient cash flow policy is a prerequisite for growth and development. For that, periodic cash or cash equivalent payments from P2P lending can help with the situation. SMEs will repay the funds from P2P lending in monthly installments.
A great benefit of investing in P2P lending is that it allows you to get monthly repayments, which is not always the case with stocks and bonds that usually pay dividends and income every quarter – and thus investing in P2P lending makes for a good instrument choice for monthly passive income. SMEs with surplus funds too, can become investors in P2P lending.
4. Low homework requirement
While doing research and risk assessment for your investments is extremely important, the classification of funds according to the risk-returns relation in P2P lending helps you get a broad picture of each loan’s risk profile without having to spend a lot of time and effort into it. The report prepared by P2P lending operators about the borrower’s health also helps you minimize your work.
5. Aiding in SME growth
The concept of P2P lending gained prominence with the rise of social funding, which helps individuals and businesses get funds from the general public. Borrowers on Singapore P2P platforms are usually small businesses and SMEs, who need funds to aid in their development. By investing in them, you can help them expand and be a part of their success!