For the longest time, financial institutions such as credit unions, banks, and finance companies have offered secured loans to companies and individuals. However, these loans come at high-interest rates hence why people now opt for (Peer-to-Peer) P2P lending platforms.
P2P lending has increased in popularity not just in Singapore but worldwide and is a great popular choice for small and medium-sized enterprises. This lending method also creates a great investment opportunity for new entrepreneurs.
What Is P2P (Peer-to-Peer) Lending?
Also referred to as crowdlending or social lending, P2P lending is a type of direct lending to businesses or individuals without the participation of a financial institution acting as an intermediary in the process. P2Plending is done by an online platform that helps match potential borrowers with their lenders.
P2P lending offers secured and unsecured loans but most P2P lending offers unsecured personal loans. Secured loans are rare, but luxury goods back them. Some of these characteristics make P2P lending an alternative source of financing.
How Does P2P Lending Work?
P2P lending is a simple process where transactions are done through a specialized online platform. The process typically has two parties.
The borrower- this is a business or individual looking to borrow money. In Singapore, however, the borrowers are usually businesses.
The investor or the lender is a person who is willing to lend their money for higher returns. The loan amount is pooled to provide the total amount that the borrower wants.
Here is the qualification one needs to meet to be eligible to be a lender or investor in a P2P lending platform:
- Be 21 years and older.
- A citizen of Singapore, Permanent Resident (PR).
- Foreigners living in Singapore with a valid employment pass, student pass, or dependent’s pass.
- A bank account with a local bank.
- Foreigners who qualify for a full bank in Singapore.
- Provides high returns to investors
- Provides an accessible source of funding
- It has lower interest rates than other mainstream financial institutions
- High credit risk
- Has no government insurance or protection
- Other jurisdictions do not provide all p2p lending; hence may not be available to some lenders and borrowers
4 P2P Platforms in Singapore to Check Out
Here are the top p2p lending platforms to checkout in Singapore:
1. Funding Societies
Funding Societies was the first lending platform in Singapore. Founded in 2015, the company used a government-registered escrow account to secure the funds. By December 2020, the company had funded more than S$1.95 billion in loans. The interest rate of the company is currently at 1.35%.
Funding Societies have three types of products for businesses. They include:
- FS Bolt – Fast approval loans within 2 hours on loans of up to S$100,000 for immediate cash flow.
- Business Term Loan – Secured loans of up to S$3,000,000 and Unsecured loans of up to $S 1,500,000.
- Invoice Financing – Businesses receive up to 80% of the invoice value.
Investing with Funding Societies involves:
The minimum investment amount is S$20, the lowest for P2P lenders in Singapore. Here are the six different types of investments that investors can choose from:
- Guaranteed Property-backed Investment
- Guaranteed Returns Investment
- Property-backed Secured Investment
- Invoice Financing Investment
- Revolving Credit Investment
- Business Term Investment
MoolahSense was the first digital platform to receive the full Capital Markets Services license from the Monetary Authority of Singapore (MAS). Founded in 2013, the platform provides businesses and investors with two allocation methods, i.e., through first-come, first-serve, or an auction, and has a fast turnaround time for loan requests.
Businesses can access funds through the following tiers:
- Small offers exemption: S$50,000 to 5 million
- Private placement exemption: over S$ 5 million
- Invoice financing: S$15,000 and above
Investing in MoolahSense allows investors to start investing at as low as S$1000 with a return of 24% p.a. The platform charges an investor service fee of 1% of repayment. All the investor monies are held under OCBC, a separate account.
3. Capital March
Established in 2014, Capital March provides P2P lending and invoice financing services to SMEs in Southeast Asia. The platform has funded more thanS$201 million in loans, but it is important to note that the Monetary Authority does not regulate it.
Its investment returns are weighted at 11.1% in 2020, with non-performing loans at 0.05%.
Capital Match offers loans and invoicing financing facilities of S$5,000 to S$200,000 for tenures between 3 to 12 months.
Capital Match allows investors to invest a minimum of S$1,000 in each loan with returns from 15% to 25% p.a. The platform charges a commission of 20% on the interest payments.
Previously known as SeedIn, the platform has provided S$72 million in funding for companies in Singapore, with the current default rates being at 0.077%
The platform offers BRDGE funds in 7 business days. It provides up to S$2 million with a 3 to 12-month tenure. BRDGE also offers client advisors to whom you can speak when you want to take a loan from the platform.
Investing in BRDGE starts from S$1,000 with returns between 5 to 17% p.a. after all the fees. The platform has achieved 100% repayment to its investors. It is also important to note that BRDGE charges Account Management Fee for its services and loan monitoring and a 15% fee on every loan repayment that a borrower makes.
1. How Do I Repay a P2P Loan?
P2P loan repayment is made via direct debit. The money is transferred either directly to the investors or their escrow account.
2. What Are the Eligibility Criteria to Borrow from A P2P Platform?
The eligibility criteria can differ between lenders, but in most cases, they need to be over 21 years, are employed and earning over a stated amount every year, and have good credit.
For businesses, your business must be incorporated in Singapore and must have been in operation for the past two years.
3. What Is the Difference Between P2P Lending and Crowd Funding?
They are both forms of borrowing funds. However, p2p involves borrowing money to make the repayments with interest rates.
On the other hand, crowdfunding involves repaying the amount based on the proposal you’ve pitched and your agreement with your backers.
Check out similar topics of article like our guide to money lender credit bureau.
P2P lending offers an alternative source of funding for businesses in Singapore from bank loans. It allows individuals and companies to get loans anonymously from a third-party company. Investors gain attractive returns on their investment compared to other investment options available in Singapore. P2P lending companies connect the borrowers and investors.
- P2P lending online platforms connect borrowers and investors.
- P2P lenders get great returns on their investment rather than placing their monies in a savings account.
- Not all P2P lenders are regulated by the Monetary Authority of Singapore.