Tag

SME

Browsing

How Startups And SMEs Can Use Fintech To Fuel Growth

The financial technology (FinTech) field grew and developed rapidly as a response to the financial problems we face, from making financial information more accessible to addressing the lack of financial inclusion in various countries. Small and medium-sized enterprises (SMEs), in particular, can benefit from the digital solutions offered by FinTech. For instance, FinTech offers e-payment and bookkeeping services that SMEscan take advantage of.

But most of all, FinTech can provide business financing solutions for SMEs. The growth of any small and medium-sized enterprises (SMEs) is dependent on the health of their finances, especially on having the appropriate funding. Certain business models within FinTech, such as peer-to-peer (P2P) lending, can be an alternative source for SME working capital loans.

FinTech as an online financing platform

To grow, SMEs need working capital. SMEs often choose to apply for loans to finance their business development. However, traditional financing products can have regulations, criteria, and processing time that are incompatible with SME needs. Often, requirements for collateral can stop a promising SMEs from getting the financing they need.

FinTech models such as peer-to-peer lending offers a solution: by building an online financing platform for SMEs. Since it is online, the application process tends to be faster and simpler. Certain P2P platforms also have apps and a small business owner can easily apply for financing through the app. The loan product also keeps SMEs in mind, with no required collateral.

FinTech as an accounting and bookkeeping service

Small businesses sometimes neglect the importance of accounting, even though it is crucial for any company to stay aware of their financial condition. Well-managed financial statements will help SMEs identify problems they are currently facing and how to bring the company to a better, more profitable place. Sometimes, small businesses simply lack the capital to hire an accountant.

These days, some FinTech platforms provide accounting technology to help manage SME financial statements. The platform also allows SMEs to have an easier invoice and payment process. Many of these accounting services are based on cloud servers so business owners can access their data anywhere, anytime.

If you do use cloud-based service providers, remember to implement the appropriate safeguards. Read more on “How to Protect Your SME from Cybercrime”

Fintech provides electronic and digital payments

FinTech digital payment solutions, such as online and mobile payment options, along with multination and multicurrency options will help businesses gain a simpler way to manage financial transactions. The electronic and digital payments solutions will especially help small businesses sell their products and services to a wider audience than if they were only dependent on cash.


Digital solutions and innovations pioneered by FinTech bring great impact for SMEs. By utilising FinTech innovations, SMEs will more easily adapt to the digital age and grow their operations.

Reviewing 2017 Business Performance, Achieving 2018 Goals

Is there a better time than the first work days of the year to reflect on business goals? If you spent the final days of 2017 scrambling to collect data and make reports, it’s time to review the past year’s business performance. For many businesses, this is the only time of the year when they have a complete set of accounts. Through them, you can see how much money you are making and spending; specifically, where the majority of your profits and revenue come from, and where your money is being spent – and if some of the expenses are unnecessary and can be cut.

You can also use 2017 reports to check on business health. Here are 3 tips to help you start your business on the right track in 2018.

Check the Health of Your Business

Other than revenue, profits, loss, available working capital, total assets, and debts to pay off, other factors within your financial statements can help you determine business health. For one, check the balance between revenue and expenses overtime. With business development and expansion, it’s perfectly normal to spend more on expenses. However, a healthy business will balance its revenue and expenses, with spending under control.

But more than financial ratios, comprehensive market research and understanding of clients bolster business success. It is paramount for a business to have a strong and well-thought-out business plan to cope with supply and demand uncertainties. A clear business plan helps align goals and unites your team by having their responsibilities defined and working towards a common vision. Haven’t got a business plan? Take the time to make one – it is of utmost importance.

Read more: “How Healthy Is Your Small Business? 5 Signs to Look For” and “Business Planning 101”

Better Manage Working Capital

Efficient working capital management ensures business liquidity. Liquidity may often be overlooked, but it is arguably as important as profitability. A business needs cash to cover short term expenses.

To figure out where you stand, calculate your current working capital ratio. Divide current assets such as cash, inventory, and accounts receivable by current liabilities. If the ratio is less than one, your business does not have enough working capital to settle short term debts. While the standard varies across industries, a ratio greater than 1 implies the business is in good financial position.

If you are struggling with managing working capital and need more cash, try looking into your stock inventory and invoice management practices. Perhaps you are carrying more inventory than needed and should adjust orders to optimize storage. Or perhaps much of your income is tied up in accounts receivable.

Read more: “How to make working capital work for you”

Consider a Business Loan in the New Financial Year

If your business goals for 2018 include big projects and development plans, maintaining sufficient capital is key. Depending on the amount of capital you need, you may need to apply for a business loan. Here are some instances where the timing may be right to start researching for suitable business financing:

  • You are looking to fund capital expenditure to optimize business productivity, (i.e, you need more equipment to accommodate growing sales volume but current profits are not sufficient to cover the costs).
  • You want to start business expansion or expand your product offerings. To do so, you need enough capital for various expenses, such as research and development, building new outlets and channels, hiring more human resources, launching marketing campaigns, etc.
  • You need to fix some cash flow issues, perhaps if invoice payments are late or consistently get stuck. Business solutions that allow you to convert accounts receivable to cash, such as invoice financing can help you enhance cash flow while you put a more efficient invoice process in place for your company.

The start of a new year is a hopeful time. You haven’t missed any deadlines and the days feel full of opportunities. This is the time to (a) discover problem points to fix, (b) understand how healthy your business is right now, and (c) know what to do in order to achieve all the targets you have planned for 2018. Good luck!


This article was written by Funding Societies, Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public.  To learn more about them, visit their website here.

Funding Societies is a DollarsAndSense Brand Connect partner. You can find out more about what they do on the DollarsAndSense Brand Connect Page.

Building The Best Team, No Matter How Small Your Business

A rookie mistake often made by those just starting a new business is thinking they can handle everything on their own. It’s still a small business, after all, so why would I need more people to help me, they think. As a small business owner, I should be able to wear many hats, they say.

However small a business started, it will eventually grow. So will yours. And every entrepreneur wants his business to consistently and steadily grow. Without the right team on your side, quality business growth is unlikely to happen. You need a great team and you can’t waste time when building one.

The thing is, building the best business team isn’t as easy as it sounds. How do you find the right people? How do you get them to work well together? How do you build the best business team even if your business is small?

Employing staff isn’t just about filling a role

Don’t rush into employing people just to fill a role. Ask yourself: what skills do I lack?

Answers to that question will help you identify what roles you must fill, along with the type of work you need the new person to do. In a small business, it’s important that the employees fit with the company and with each other, so make sure the people working with you believe in your business idea and vision. If they don’t, they won’t feel engaged and won’t bring additional value to your business.

Read also: Is Having No Job Better Than A Bad First Job?

Understand the strengths of each individual

It’s a given, each of your employee will enter the workplace with different personalities, quirks, and sets of values. Therefore, they will have different ideas about how to do their jobs. As a business owner, it’s important to recognize this, even if the way you work clash. People have different strengths and so long as your employees are contributing to your business in a healthy way, you’re on the right track. Just create an environment where people can channel their strengths and discuss their ideas or disagreements in an open, healthy fashion.

Explain your business goals

Before you officially start working with the new team, make sure everyone is on the same page. Let them know what they are aiming for and help them understand the goals of your business. It’s better if you have already created a vision of where your team should be —six months, a year, or two years from now. This will give your team a feeling for the situation in which they are working and the goals they are working towards.

Read also: Life At A Fintech Startup: 5 Interns Share Their Lessons Learned

Define roles as clearly as possible

Once everyone understand what the goals are, you can start bringing out the best in them. Make sure everyone is clear about their responsibilities, what is expected of them, and what is not. If you don’t make this clear, your team will work in confusion. They are not sure of their respective roles and boundaries. On a larger scale, business progress and efficiency will be affected.

Don’t forget that team roles are not static. As a business expands and various players show their strengths and results, you will need to periodically update roles and task list.

Are team building exercises necessary?

Here’s the honest answer: it depends. Small businesses are often fast-paced environments, so you need to get your team working together quickly. Team building exercises can help, but consider your budget to calculate whether you can afford them. Sometimes providing snacks when staff has to work late, or going to karaoke on a Friday night, is enough to get the band together and show that management cares.

In order to improve team performance, ask them to provide feedback. Listen carefully to what everyone says. Use the feedback to evaluate not only team performance, but also your own effectiveness as a leader. Last but not least: have fun building and growing a business with your new team!

This article was written by Funding Societies, Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public.  To learn more about them, visit their website here.

Funding Societies is a DollarsAndSense Brand Connect partner. You can find out more about what they do on the DollarsAndSense Brand Connect Page.

Budgeting: Balance Your Spending

“My money keeps spilling out like water.”

Many of us have experienced the frustration of having too many expenses to track. We have to pay for housing, utilities, taxes, transportation, food, the list goes on. Sometimes we can’t catch a break despite bringing in a reasonably good income.

It’s normal to feel overwhelmed about expenses from time to time. But when the feeling expands to a paycheck to paycheck lifestyle, you need to start a budget.

A personal budget is your own spending plan. It’s necessary for a myriad of reasons. Budgeting helps you spend less than what you bring in. It helps you identify problem areas, such as impulse buys. It helps you prioritize your spending and manage your money. It also helps you keep track of your financial goals: are your savings progressing towards your short-term and long-term goals?

In spite of its importance in a solid financial plan, many people avoid budgeting. The word is unfortunately associated with deprivation and excessive cheapness. But a good budget means living well rather than living poor. A good budget, like most aspects of life, requires us to create balance.

Before crafting a personal budget, we first need to differentiate a want vs. a need.

Imagine three buckets. Bucket #1 is for compulsory expenses, such as food, rent or housing, and “overhead” costs like utilities. Generally, bucket #1 is categorised under fixed expenses and there shouldn’t be too much fluctuation of cost between months.

Bucket #2 is where you drop your investments and savings. Bank deposits, retirement funds, property investments, bonds, and stocks all belong to this category. Lastly, Bucket #3 is for discretionary spending, such as travel, shopping, hobbies, and nights out.

It’s easy to guess which are “wants” and which are “needs” isn’t it? Bucket #1 and Bucket #2 contain “must haves” while Bucket #3 contains “nice to haves.” While items in Bucket #3 are mainly “wants” and “nice to haves,” you still need to moderately indulge in them to live a happy, balanced life.

We also need to separate personal assets and liabilities. Assets include your house or apartment, your vehicles, your checking and savings accounts, and your investments. Alternative investments such as art and jewelry can also count.

Mortgage and car loans are liabilities, but will be considered assets when paid in full. Credit card debt and personal loans tread on more dangerous territory, as their interest rates are high and they don’t become assets when paid in full. Also, beware of indulging in too many “wants.” Eventually most of them depreciate to nothing, becoming sunk cost – when the money could have been used to purchase assets.

Read also: 5 Useful Tips To Keep Your Business Finances Healthy

On to business. Let’s discuss the three steps of budgeting:

#1 Start by tracking your spending

There are many ways to keep track of your expenses – there is no correct method. You can use a notebook and pen, a Word doc, an Excel spreadsheet, or even personal finance apps like Mint and Toshl Finance. What matters most is consistency.

Note down all your spending, even small ones like your daily latte – the point of this first step is to know where your money is going. Update your budget regularly so you won’t forget anything. Use accurate descriptions for your purchases, such as groceries, clothes, etc. Again, you want to know exactly where your money is going.

Tracking your spending is essential as it helps you identify problem spending areas and readjust your priorities. It also helps you tailor your own spending ratio.

#2 Analyze your expenses, prioritize, and create a spending ratio

Remember the three buckets? Most of your income should go to Bucket #1 (Compulsory Expenses) for food, lodging, and utilities. Try to achieve a good balance between Bucket #2 (Investment/Savings) and Bucket #3 (Discretionary Spending), especially if your notes on expenses show you are overindulging. Spend less on “wants” and think about your future financial goals without severely depriving your fun.

Figure out a ratio for where your income should go. This Forbes article suggests a 50/20/30 ratio for Buckets #1, #2, and #3. A Google search of the “personal budget chart” shows many different approaches to personal budgeting. The key here is finding the ratio that works for you. It is you who decide what your priorities are.

Can’t calculate a ratio? Don’t fret. Just try a ratio combination and see what fits your personal expenses and needs. Make adjustments if you need to.

Read also: 5 Steps For Better Cash Flow Management

#3 Track your budget overtime

Now that you’ve created a budget, here comes the most crucial step: sticking to it. Do your utmost to follow the spending ratios you’ve set up – with an emphasis on reasonably saving and investing your income. You can only gain the benefits of a personal budget if you track your progress and make sure you are spending below your income. Your budget acts as a progress report: are you prioritizing well and saving enough?

If you find it difficult to stick to a budget, you may be spending too much on unnecessary items – remember future goals like owning your own home! At the same time, if you’ve only started budgeting, relax. As time goes on, you’ll see a difference in your spending habits overtime. Check the difference in spending after 3 months. You might surprise yourself. Just stick with it.

This article was written by Funding Societies, Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public. 

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.

Success Story – P2P Loan To Manufacturer

This article first appeared Lets Crowd Smarter, a digital publication about crowdfunding and investing in Singapore and Asia.

Not all crowdfunding schemes are fraudulent. We (the Let’s Crowd Smarter Team) have invested in over 50 crowdfunding schemes across different platforms and our overall experience has been great.

Yes, there are a few problem loans whose repayments are always late. And we’re lucky not to have encountered any outright default yet. But we have seen more successes than failures.

We believe that as long as investors stick to the more established crowdfunding platforms (such as Funding Societies, MoolahSense, Capital-Match, Crowdo and New Union) and have a widely diversified portfolio, the overall returns should be positive.

As an example, our p2p loan portfolio is earning a cash return of about 1.5% per month, or about 12% so far this year.

Read Also: Spotting Red Flags in Crowdfunding Schemes

Crowdfunding Success – A Real Story

Here, we’ll share with you a crowdfunding success story – a p2p loan that we participated with Funding Societies in December last year. The effective interest rate was a cool 23.6% per annum. (We also have similar successes with other platforms and will share them next time.)

The loan ID is SB-1512005 but we’ll respect the borrower’s confidentiality and not disclose its identity. Below are some of the key features of the loan.

cf1

 

cf2cf3

 

 

 

 

To summarize, this company is borrowing $100k as working capital for a $780k project. It promised to repay over 6 months. Effective interest earned by the lender is 23.6% per annum. As this is a 6-month loan, the actual  interest earned is roughly half of that.

Funding Societies provided further financial information and comments on the borrower. We did a quick review and find the risk to be acceptable. Hence, we decided to lend $1,000 on this loan in December last year.

cf4

Prompt Repayment

Over the next 6 months, this borrower repaid promptly every month. The final repayment was in June 2016. On this loan, we earned the 23.6% effective interest rate per annum – exactly as promised.

cf5

Verifying Our Return On Investment

Now let’s verify that we are indeed earning 23.6% effective interest per annum.

But before we do that, we’ll need to explain the difference between effective and simple interest rates.

Effective interest rate refers to the interest earned on the outstanding loan. When the borrower repays its loan every month, the outstanding loan balance declines. The interest earned by this declining loan balance is known as the effective interest.

On the other hand, simple interest is basically the total interest earned by the loan as a percentage of the initial loan amount. It does not take into account the declining loan principal or the repayment every month.

We prefer to use effective interest rate. Using Excel’s IRR function as shown below, we easily show that the effective return is indeed 23.6% per annum.

cf6

Is it really so easy?

If crowdfunding is so easy, why are there still plenty of negative news about defaults and frauds?

In our view, most of these platforms that ran into trouble are poorly managed. Many are fly-by-night operators that nobody has heard of. Their loan underwriting process is not credible at all. For the recent First Asia Alliance case, there were so many red flags, including the fact that the director of the crowdfunding platform is also the shareholder of the investee companies.

But there are also well-managed crowdfunding platforms that already have or in the process of getting CMS licenses from MAS. This includes Funding Societies, Capital Match, MoolahSense, New Union and Crowdo.

We (at Let’s Crowd Smarter) are comfortable with and have invested our own money with this second group of crowdfunding platforms. Overall, our investing experiences have been great. Of course, we do have some problem loans and late repayments, but these usually form less than 10% of our total portfolio. Success stories still far outnumber the failures we had.

If investors choose the correct platforms, investing into crowdfunding schemes can generate attractive returns without too much risk as shown in this example.

Read Also: Traits Of A Successful Trader

Funding Societies is a DollarsAndSense Brand Connect partner. Funding Societies is Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

How To Manage Your Investment Portfolio Like A Pro

Managing an investment portfolio is a lot like managing a business. With a disciplined, patient, and proactive approach, you can preserve and protect your wealth while attaining financial independence. Your investment strategies might differ, but you’ve to begin with some principles that are consistent at its core, which not only match the markets but your individual characteristics as well.

It’s also important to remember that not all investments in a portfolio may generate returns. It’s a lot like a badminton match – you will lose some points, but to win a game you’ll just have to win more points than you lose. Read the following keys to investing and know how you can ace those points!

Invest only in assets you understand

In many cases, retail investors take action in the fear of missing out on a “sure-shot” investment opportunity. The key is to avoid any frantic decision. Don’t worry about what you don’t know, worry about being sure on what you do know. If you don’t know how an investment actually works, you can’t know whether you really need it. There are plenty of alternative investment opportunities like P2P lending, which are easy to understand and implement. Consider investing in those.

Diversify

It is a prudent approach to create a basket of investments that provide broad exposure within asset classes. It spreads the risk and reward within your investment portfolio. When it comes to investing, the more diversified you are, the better.

We also advise diversification within an asset class or sector. For example, if you invest in P2P lending, you can distribute your investments across as many SMEs as possible to prevent loss in case an SME defaults. Even defaults hardly disturb your rate of return.

If you’re investing in stocks, make sure to not put more than 4% of your total portfolio in one individual stock. This will ensure that if a stock or two faces a downslide, your entire portfolio doesn’t suffer.

Invest for the long term

We believe that a long term horizon is a necessary ingredient for investment portfolio success. Investing is a marathon, not a sprint. Don’t get carried away with the ebb and flow of the market, and stay patiently invested. Also keep in mind that past performances are no guarantee of the future, and individual situations may vary.

Rebalance your portfolio regularly

Over time, your investments may fall out of sync with the original asset allocation. You may also want to restructure investment allocation. Re-assess your portfolio every six months or annually. Try not to tinker with your investment portfolio at short intervals of time – it’s also important to give time to investments.


This article was written by Funding Societies, Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public. 

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.

5 Steps to Digitise Your Business in a Tech-Savvy World

Today’s technology grows at such breakneck speed. Compare the gadgets and online tools you are using today to ten, or even five, years ago. Technology is inseparable from daily life. Take online shopping. These days, many people prefer it to brick-and-mortar shops.

Business owners must adapt to the new digital age to stay afloat and thrive. Everyone needs to digitise their businesses. How to do so? Here are 5 steps:

Set a goal

Never build anything unless there is a set goal. Why do you want to digitize your business? What are your goals? Do you want to gain more sales? Do you want to create awareness for your business? Setting goals will help you decide which digital strategy you need to utilize.

Create your own sites

Invest your capital in creating your own business website. Make the address as simple as possible, preferably using your brand name as the web address. Prioritise design. Don’t hesitate to hire a web designer if you can’t do it yourself. Your company website is your business face. People will assess how professional your business is based on your site interface.

It doesn’t stop with design. You also need clear and useful content on your business website. Make sure that your content is related to your target market. You will gain more leads if you have high-quality content aimed to your target market.

Read Also: 5 Tips to Create & Manage the Best Business Website on a Budget

Use the power of social media

Now that you have your own website, you need to spread the word. This is where social media will help you in the most effective way. Create a Facebook page, an Instagram account, a Twitter account, even a LinkedIn page – utilise as many social media platforms as long as the platform is still within your niche and your company has the capability to maintain these accounts.

Invest in advertising. You can also broadcast your website’s high-quality content via social media accounts for branding.

Create a mailing list

Creating a mailing list will help you to keep in touch with customers. Hold promotions and discounts to attract more people into subscribing. You can also use referral campaigns to gain more subscribers from loyal customers.

Arrange your projects online

If possible, start digitising manual processes. By making your company more digital, you can cut down on inefficiencies and evaluate the overall workflow. Schedule periodic reviews to continue streamlining and evaluating your operations to keep your processes up to date.

Digitising your business is easier than you think. And the benefits are many. Adapting to digital technology will lessen the possibility of human errors and develop more efficient business processes. In the long run, digitising your business saves both time and money.

Read Also: Grow Your Business Without Breaking The Bank

This article was written by Funding Societies, Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public. 

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.

Default Rates in Peer-to-Peer Lending Platforms

To paraphrase Crowdfund Insider’s “The Ultimate Crowdfunding Guide,” with peer-to-peer (P2P) lending, the risk an investor accepts is default. Every P2P lending platform has its own policy on default, and all investors need to take the time to understand these policies in order to protect themselves.

Because every P2P platform has its own default policy, and because the P2P lending business model is relatively young, we must be cautious when making generalizations about default rates across all platforms. Specific to Funding Societies, we fully aim to keep default rates close to banks – not exceeding 4 to 5% of loan amount to secure healthy returns for investors, even accounting for the cost of default.

The industry’s youth may cause investors with low-risk tolerance to view P2P lending as an unpredictable instrument. Generally, there is a consensus among investors that P2P lending constitutes a higher-risk, but higher-reward investment.

Is this belief true and valid? Let’s take a look at the global trend of default rates in P2P lending platforms.

Default Rates on P2P platforms in the USa

Let’s begin with default rates in USA platforms. In this fascinating article, the author analysed historical trends of default in two well-known USA platforms, then drew conclusions about the default rate of the P2P industry.

(Note that the article was published in 2014, so some might find it dated. However, the analysis within is worth a read)

The writer pointed out that from 2007 to 2008, the USA economy was doing very poorly and that both Lending Club and Prosper were operating under their earliest and most imperfect credit models, which means the default rates of 2007 and 2008 can be waved off. Since 2010, both platforms have averaged a 5% default rate and are likely to continue having solid repayment rates in the future.

The article ends with a positive conclusion about the P2P lending industry. The author wrote: “I see refined underwriting algorithms and mailed borrower marketing, encouraged investor capital and purpose-built technology all repositioning itself over and over for the past eight years until they are arrive at the stable place they hold today. I see analysis and sweat and reanalysis in these charts, and in the end I see it culminating into one of the most simple and creative investments our country has ever seen.”

His statement underscores that under the right circumstances, which includes an innovative team and rigorous credit policies, P2P lending platforms thrive and provide attractive returns while lowering default rates. The key is in selecting a trustworthy platform to invest in.

Read More: 5 Reasons To Invest in Peer-To-Peer Lending

DEFAULT RATES ON P2P PLATFORMS IN THE Uk

Moving on, let’s focus on a well-known and respected P2P lending platform from the UK: Funding Circle. In their statistics page, Funding Circle claims that its average annual default rate stands at 2%. The rate has also remained solid over the years (calculated from 2012-2017), showing that platform maturity and good credit underwriting will stabilise default rates.

funding societies’ DEFAULT RATES

What about our own platform, Funding Societies? Here is our own statistics page. Historically, our default rate across the region has lowered overtime, which reflects the analysis of P2P lending platforms in the USA: continuous platform improvement and rigorous credit policies will lower default rates.

Another worthwhile read about the risks in P2P lending is the study released by the UK Peer-to-Peer Finance Association (P2PFA). Some of the study’s pertinent points include:

  • The P2P industry has created more choice in the financing and investment market.
  • P2P lending platforms conduct credit risk assessment using the financial industry’s best practices.
  • P2P lending does not create systemic risk. Platforms are well-placed to weather a downturn in the credit cycle – defaults would need to increase at least threefold to reduce average interest rates for investors to below zero.

So let’s go back to the question we asked earlier: is P2P lending a higher-risk investment? Not necessarily.

However, the P2PFA study presented two caveats: that there is a good regulatory framework for the P2P industry and that investors are educated. For the first point, MAS has begun setting up regulations for P2P lending platforms. Funding Societies has always been compliant with regulations; we hold the CMS license required by MAS to operate, along with taking due diligence and our credit assessment process very seriously.

For the second point, there will always be risks in investing, including risk of default in P2P financing. But there are ways to mitigate such risks.

Read More: Investing In An Uncertain World

how can i diminish p2p investment risks?

How do you diminish P2P investment risks? You diversify your investment and reinvest your returns.

Diversification means distributing your funds across as many investment opportunities as possible to prevent loss in case of default. The more diversified you are, the more protected your investment. Even defaults hardly disturb your rate of return. If you choose not to diversify, you stand to lose most of your investments should a default occur.

Meanwhile, reinvestment refers to the act of funnelling your investment gains into new investment opportunities to maximise your returns. Without reinvestment, you only receive the expected rate of returns. But with reinvestment, you can maximise (sometimes doubling, even tripling) your returns while minimising your investment risks in case of default.

For more information on diversification and reinvestment, see here.

When investors fully understand the risks of P2P lending and take proper precautions to protect their funds, the advantages of investing in P2P lending clearly outweighs the risks. In fact, it’s very likely that most investors who keep diversifying and reinvesting their investment will continue to earn positive returns.


This is an updated version of an article posted on this blog. Click here for the original article.

This article was written by Funding Societies, Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public. 

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.

Businesses That Should Consider P2P Loans

Peer-to-peer (P2P) lending is the practice of lending money to individuals or businesses through online platforms that match lenders and investors directly with borrowers. Anyone can take advantage of P2P loans, so long as they pass the required credit assessment.

P2P loans are particularly advantageous for small businesses and SMEs; applying for financing through a P2P lending platform offers a faster, simpler process – very useful for small businesses that need quick hits of working capital and cash flow aid. Whether or not you need a business loan depends on your financial condition, but if you are looking at financing options, P2P loans can be the loan product for you if you fit the categories below.

Businesses Looking to Grow

Looking to expand your business? P2P lending platforms can be the financing source for you. P2P lending platforms often target small businesses, with the appropriate revenue requirements and loan sizes to prove it.

Businesses Looking for More Working Capital and Cash Flow

A small business, no matter how profitable or healthy, needs constant cash flow. Because P2P lending platforms provide faster processing and approval notification time, businesses can get their funding faster than from a traditional financial institution. This is useful for certain businesses, as they need running cash flow more than others. Wholesalers, for instance, always need to buy more stock inventory.

Read More: 5 Useful Tips To Keep Your Business Finances Healthy

Younger, Smaller Businesses

Why is P2P lending an excellent option for young SMEs? Because even though they may be financially healthy and are generating good revenue, they usually have no suitable assets for secured loans. P2P loans generally have competitive rates and no collateral requirements, making it ideal for small businesses hungry to expand their companies (or maybe just need financing to fund a new project). P2P loans have a structure that is short-term with competitive rates.

Read More: When Should Your Business Apply For A Loan?

5 Reasons You Should Invest in Peer-To-Peer Lending

As peer-to-peer (P2P) lending grows in popularity as an alternative investment option, people pay more attention to the opinion climate about it. However, the hype surrounding P2P lending mostly talk about how the system enables SMEs and borrowers to get funds with less restrictions, by cutting out the traditional middlemen (banks and other financial intermediaries). Not much has been said about what is in it for the P2P investor.

This video explains the advantages P2P lending brings to the investor, and how they can increase their returns while helping out SMEs.

Read also: 5 Reasons To Invest In Peer-To-Peer Lending

Find out more about P2P lending 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.