How can crowdfunding help SMEs raise business working capital?

crowd funding peer to peer business lending

 What is Crowdfunding?


Crowdfunding is a form of peer-to-peer or peer-to-business lending from a collective crowd of investors who pool their money together to offer finance to businesses and individuals.

However as lending to individuals are regulated and restricted to money lenders, banks and finance houses, only peer-to-business lending are allowed in Singapore.

How does it work?


Prospective companies requiring finance are required to submit their financials, bank statements, director’s identification and tax documentations for review and assessment.

Upon approval of assessment, prospective companies are then published on the crowd funding platform to be reviewed by registered investors. Balance sheet and P&L numbers in the financials are also conveniently converted to various quantitative ratios for investors to assess and offer their bid.

Companies offer their max quote for the interest rate that they are willing to pay to acquire the funds. Investors submit their bid to offer financing at the minimum interest rate that they want to get.

The bidding process begins, matching investors’ and companies’ expectation based on the submitted bids and offers, somewhat similar like our car COE system.

Example
Company Z wants to borrow $100,000 and is willingly to pay up to 20% interest cost.

Investor A assessed the company and ascertain that it is reliable and worth lending to and is willing to lend $50,000 to the company at a bid of 15%/pa interest return.

Investor B comes along and decides to submit a bid for $50,000 at 12%/pa only. Investor B gets to queue ahead of investor A as he has submitted a lower interest bid.

Investor C comes along and decides to submit a bid for $50,000 at 13%/pa only. Investor C gets to queue behind investor B, ahead of investor A as he has submitted a lower interest bid than investor A.

Bidding closes. The allocation of lending is successfully allocated to investor B and C at the higher consistent interest cost of 13%/pa for both investor B and investor C while investor A fails in his bid to lend out his monies.

Company Z is also happy as it managed to secure lower borrowing cost that its initial offering of 20%. The whole lending is fruitfully match by market demand and supply.

 

Terms of finance

  • Minimum issue amount of $100,000.
  • Up to 12 months tenor.
  • Monthly repayment of principal and interests in equal instalments.
  • Market determined rate.
  • 3% processing fee of issued amount when successfully matched. No fees are applicable if the campaign is unsuccessful.

 

 

Minimum Qualification Criterial

  • Singapore registered Private Limited and Limited Liability Partnership entities.
  • Not an individual or sole-proprietorship
  • No existing Winding up/Judicial Management order
  • Have 1 year of accounts filed with ACRA or in the event that the business does not file its accounts, to have been trading for 2 years
  • Minimum annual turnover of S$100,000

 

Documents Required

  • Latest ACRA Biz File (or equivalent)
  • Past 3 months Bank Statement
  • Past 2 Years of (Audited) Financial Statements [P&L, Cashflow (if avail) and Balance Sheet] and/or most current Management Accounts
  • NRICs of Directors/Partners
  • Proof of Residential Address of Directors/Partners
  • Latest Income Tax Notice of Assessment of Directors/Partners/Guarantors
  • Latest credit bureau report (via http://www.creditbureau.com.sg/buy-my-credit-report)