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Why Invest in P2P Lending?

Many people are new to peer-to-peer (P2P) lending as an investment option. Questions arise. Is it trustworthy? Does it fit my needs as an investor? Who else have invested in it?

All valid concerns. Nearly no one wants to jump in blind when it comes to investing hard-earned money. Not billionaires, not angel investors – even they do extensive research prior to investing. People want examples of successful P2P investors and whether P2P lending works for their portfolio.

However, you’d be surprised by how flexible this form of alternative investment is.

Flexibility

Let’s start with individual or retail investors. Why is a relatively new investment opportunity so appealing to this segment?

The financial market can strike one as tangled, complicated, and unpredictable. Where does one even begin? P2P lending can feel like a breath of fresh air as it offers a much simpler concept. Basically, it is a form of alternative investment where investors collectively fund loans and earn interest-based earnings in return. Think of P2P lending as profitable crowdfunding! Where crowdfunding projects usually support charities and artistic ventures, P2P lending lets you collect attractive returns.

Due diligence and credit assessment guides your choices

Also, compare P2P lending with stock investment. Navigating the stock market requires expertise and research. Credible P2P lending platforms perform all the necessary due diligence and credit assessment to guide your investing choices, which saves time.

You still need to do some of your own research though, so you can decide for yourself which businesses you want to invest in. But overall, P2P lending jargon is more accessible compared to other investments.

Read Also: Three Key Risks of P2P Lending

alternative and affordable

Other bonuses? The affordable entry. At Funding Societies, you can invest in each small business with as little as SGD 100. P2P lending is also a profitable, with returns up to 14% per year.

It’s easy to see why individual investors are seeking alternative investments like P2P lending. Through it, you make passive income with ease and you earn higher returns from lower capital.

Read Also: 3 Alternatives To A Dividend Portfolio

More and more, P2P lending is gaining popularity. Respected media outlets such as Forbes have talked about its benefits. P2P infrastructure is thriving and all the indications point to one conclusion: P2P lending is here to stay!

This article was first posted on the blog of Funding Societies (Malaysia). Click here for the original article.

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

6 Different Types Of Alternative Investments You Should Consider

Whether you’re just looking, or starting out in investing, it will be helpful to understand the major instruments with which people tend to invest. This video gives an overview of 6 main investment options, as well as their qualities and characteristics. 

Read More: Starter’s Guide: 6 Different Types of Investments For You To Consider

Read Also: This App Can Help You Kick Start Your Investment Journey

Find out more about alternative investing at Funding Societies here.

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

 

How Technology Can Revolutionise The Way We Invest

The older generations love gold and properties as their mode of investment and method to hedge against inflation. With the advancement of the Internet and technology, the new generation of investors are now more well-equipped with information and new investment opportunities. This is especially so in recent decades, when the huge leap in technology opens up a whole lot of new sub sectors in the digital industry which can potentially revolutionise the way we invest.

Let us look into 5 growing digital sub sectors and how it can create new investment opportunities.

1. Crowdfunding

According to Investopedia, Crowdfunding refers to the use of small amounts of capital from a large number of individuals to finance a new business venture. Typically, crowdfunding is either reward-based or equity-based.

For reward-based crowdfunding, entrepreneurs or inventors will pitch their product idea to investors, in exchange for a free or discounted finished product. An example of such crowdfunding website would be Kickstarter, the world largest reward based crowdfunder where over US$2 billion has been pledged by more than 10 million people since they launched in 2009. Oculus Rift began as a Kickstarter project 3 years ago, and eventually raised US$2 billion. Pledgers of the project were promised to get the upcoming Oculus Rift for free (how we wish we knew this project back then!) However, this type of crowdfunding is not considered as an investment.

As for equity-based crowdfunding, investors can chip in for the projects in exchange for the equity of the firm. The more prominent equity-based crowdfunding platforms are Seedr and CrowdFunder. Locally, Fundnel also offers various funding methods for businesses and investors depending on their suitability.

Based on 2014 statistics, Asia is recording exponential growth in crowdfunding market, contributing 21% to the global funding volume. Globally, an estimated US$87,000 is raised every hour.

2. Peer-To-Peer (P2P) Lending 

P2P lending refers to a debt financing method which enables individuals to borrow or lend, without the traditional brick and mortar financial intermediaries. Investors can lend money to the businesses in exchange for periodic interest payment and the principal amount upon maturity. It is also known as social lending. Without the traditional financial intermediaries such as banks and finance companies, P2P lending narrows the interest spread between lenders and the borrowers which is beneficial to both parties.

P2P lending is usually deemed as risker as investors are lending their money to businesses that banks might have rejected their loans. However, there are many reasons why banks can reject a loan. And one of the main reason is that these SMEs do not have enough history of track records in earning ability or cash flows.

P2P lending platforms can help to assure the investors by doing first-round screening of the SMEs before posting them online. Financial information are also provided for the investors to do due diligence.

MoolahSenseFunding Societies and Capital Match are some of the P2P lending platforms in Singapore.

3. Bitcoin

Bitcoin is a digital currency (also known as crypto-currency) created in 2009 with the promise of lower transaction fee than traditional online payment methods. It is the most accepted digital currency and some businesses accept Bitcoin as a mode of payment for goods or services. Besides acting as a mode of payment, Bitcoin is also seen as a type investment for many people. However, price of Bitcoin can be very volatile. The highest recorded price was US$1,151 per Bitcoin in 2013 while the lowest was US$205 in 2015. As at 15 Feb 2015, price of 1 Bitcoin is at US$404.

To find out moreBitcoins Investopedia 

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4. Direct Purchase Insurance (DPI)

DPI enable consumers to buy basic life insurance policies directly from the insurance companies online, without having to go through financial advisors and hence, bypass commission charges. This initiative implemented by Monetary Authority of Singapore (MAS) to allow Singaporeans to have access to basic protection without any financial advice. Consumers can compare financial products offered by different insurance companies using online platforms like CompareFirst and take their time to decide which policy best suits them.

This initiative, together with vast availability of information online, people can make more informed choice and hence reduces the conflict of interest for insurance agents. The current commission based system might prevent some of the agents from recommend the soundest advice for their clients.

Read Also: Will Buying Life Insurance Online Be The Next Big Thing?

5. Ecommerce

Everyone loves Ecommerce. Yes, everyone, even the Durian sellers.

People love to buy things online for many reasons. It can be due to convenience, price competitiveness, price comparison or variety. The trend of buying things online is set to grow further and hence, listed ecommerce companies presents an unprecedented investment opportunities for the investors. The ecommerce sector is undergoing explosive growth, attracting US$112 billion worth of investments globally in 2014.

With increased connectivity and the advancement of technology, it spurs a new wave of innovation and the birth of new subsectors. This also presents more investment options hence moving investors away from the more traditional investment methods. It is worth looking more in-depth in digital sector than ever before.

To find out more about the digital sector, visit sgx.com/digitalsector

Source of top picture

Choosing the Right Crowdfunding Product

Interested in raising capital through crowdfunding? We’re not surprised. After all, crowdfunding comes with some pretty sweet advantages. The crowdfunding process is cheap, quick, easy – often entirely online. Because crowdfunding requires no collateral, it is a great alternative to traditional funding such as secured loans.

As we discussed in our last article, there are three major forms of crowdfunding: rewards-based crowdfunding, equity crowdfunding, and peer-to-peer lending. To learn more about them and compare the different forms, click here.

Each form serves a different purpose and targets a different demographic, so it is crucial that you pick the right crowdfunding product. Which crowdfunding product is your match? Below, we have provided a handy list for you to use. Read on!

Rewards-Based Crowdfunding

  • Rewards-based crowdfunding is for you if you are trying to pitch a project. It is meant to raise capital for products or services. Its purpose is not to fund your overall business.
  • Rewards-based crowdfunding is ideal for those in the creative or artistic field, or those developing new products and technology to get market validation and pre-orders before starting production.
  • Most rewards-based crowdfunding campaigns expect to raise around $10,000 – $100,000 according to this article.
  • This is a crowdfunding form that requires effort on your part. You need to create a business plan for your brand and your project, you need to do research, think about legal and tax issues in advance, plan the rewards you will offer your supporters, and craft a compelling story or video to market your project and entice new backers. For more details, check out this Forbes article.
  • Costs include: reward and shipping costs, income taxes, and platform fees.
  • Key platforms include Kickstarter and Indiegogo. Coincidentally, Kickstarter has opened new branches in Asia, including Singapore.

Equity Crowdfunding

  • Equity crowdfunding’s primary purpose is to fund startups with strong growth potential.
  • Because equity crowdfunding is essentially a barter of company shares for funds, ask yourself: are you willing to part ways with your company shares? Are you someone who likes to be in control of your company? If you are indeed willing to let go of company stocks and are looking to raise a large amount of funds, then equity crowdfunding is for you.
  • Equity crowdfunding campaigns expect to raise somewhere between $250,000- $3,000,000.
  • Like rewards-based crowdfunding, equity crowdfunding requires effort on your part. Your startup may be very promising, but you still need to pitch its worth to potential investors on your chosen platform.
  • Costs include platform fees and of course, partial ownership of your business.
  • Key platforms include: AngelList and CircleUp.

Peer-to-Peer Lending or Debt Crowdfunding

  • Peer-to-peer lending provides loans with competitive rates and no collateral. Depending on your chosen platform, you can crowdfund personal loans or business loans.
  • However, peer-to-peer loans are especially useful for SMEs and the underbanked segment.
  • Ideal for small businesses searching for short-term credit to strengthen cash flow, to expand their companies, to finance a newly secured project, or just for operating expense.
  • Here’s an example: businesses with income tied in accounts receivable are a great target segment for peer-to-peer lending as they can have quick loans through invoice financing to start new projects while they wait to get paid.
  • A good option for younger, smaller, and revenue-generating companies, but with no suitable assets for secured loans.
  • Peer-to-peer lending campaigns expect to raise around $20,000-$500,000.
  • Requires less effort on your part compared to rewards-based crowdfunding and equity crowdfunding. Your chosen platform will do credit assessment to see if you are suitable for a loan and take care of the rest. You don’t need to market your funding needs.
  • Costs include platform fees and loan interest.

If peer-to-peer lending sounds like the crowdfunding product for you, you can learn more here and apply for a peer-to-peer loan at Funding Societies here.