Debt crowdfunding, commonly known as peer-to-peer (P2P) lending is an investment concept where individuals & institutions together invest in loans to SMEs and earn returns in the form of interests. Launched over 1.5 years ago after Business Term Loan Investment and Invoice Financing Investment, the Property-Backed Secured Investment provides a product diversification opportunity for investors.
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What are Property-Backed Secured Investment?
Property-Backed Secured Investment is an investment into loans taken by companies who have pledged a local property as a form of collateral against the loan. The pledged local properties can be owned by the companies and/or directors of the companies, and can be residential, commercial or industrial. If the situation arise whereby the company defaults, Funding Societies can liquidate the property to recover the principal & interest and pay back the investors.
As an investor, you can start investing from S$20 into this secured investment product.
Why should you be excited about this product?
It is secured by property as a collateral: Funding Societies takes the first charge on the property. In the event that the property needs to be liquidated to repay the loan, Funding Societies will have the first right to access the cash after it is auctioned. Given the 70% Loan to Property Value (LTV), there is enough buffer against fluctuations in market prices that result in properties being devalued.
- It’s a short-term investment: Loan tenors typically range from 1 to 12 months.
- Fair returns for a lower-risk product: You can get up to 8% p.a. returns on your investment.
- Additional Diversification: Existing crowdfunding investors now have a secured loan product to further diversify their portfolios. New investors who have not invested in crowdfunding can take this opportunity to start investing.
What happens if a SME defaults?
If the loan reaches default (defined as 90 days past payment due date), Funding Societies will pursue legally to auction the collateralized property. We have recently empanelled Savills, a leading global property agent with one of the largest agents network in Singapore, to help us to liquidate the properties as and when required. Proceeds from the auction will be used to repay the investors and any excess will be returned to the owners of the property.
In the rare scenario where proceeds from the auction are insufficient to repay the loan, Personal Guarantors (usually Directors of the company) and the borrowing company will be liable for the outstanding due.
TL;DR (Too Long; Didn’t Read)
Given that there is collateral security in the form of a property, Property-Backed Secured Investments are generally lower risk compared to other non-secured investment products.
For those with a lower risk appetite but still want to potentially earn a return of up to 8%, the Property-backed Secured Investment is a product you can consider to diversify your portfolio.
For more information on Property-Backed Secured Investments, check out our Help Center article here.