The Basics of P2P Lending & Crowdfunding Platforms Explained
What Is Crowdfunding?
What exactly is crowdfunding? It is a financing method for ventures and firms seeking funds from the public and investors, to finance a project or initiative. Investors receive interest payments or equity shares from investing in a company on a crowdfunding platform.
There are 4 types of crowdfunding available, namely the following.
Equity-based crowdfunding is the type of crowdfunding that is an investment. Startups and small businesses can choose to offer equity shares to those who invest in them. FundedHere in Singapore is one example of an equity crowdfunding platform.
Another type of crowdfunding which is an investment is debt-based crowdfunding, also known as P2P lending. The money that is pledged by the investors will eventually be repaid with interest by the firm that you are supporting. One example of a debt investment platform is Funding Societies, available for Singapore investors.
Rewards-based crowdfunding is when those who raise funds for the initiative receive something for their donation. One example isKickstarter, where users who donate an amount of money to support a campaign receive something in exchange.
Those who channel funds in support of a company’s new project or initiative for donation-based crowdfunding would receive nothing in return. One example would be GoFundMe, where non-profit organisations and service-oriented businesses seek funds from donors.
Features Of Crowdfunding Platforms
If you are interested in embarking on your journey as a crowdfunding investor with these P2P lending and crowdfunding platforms, choosing a crowdfunding platform is of utmost importance. Having a trusted platform to conduct your investment activities is essential, but as a beginner, how should you choose?
Fret not, as we will be delving into the variety of factors and features of typical crowdfunding platforms so that you will be better equipped to take your pick and choose the platform that is best for you and your financial needs.
Below are some of the key features that every investor should take into consideration, as they can greatly impact your returns on investment.
1. Investor Service Fee
For almost every investor, the fees involved can be one of the most crucial factors when it comes to making a decision between brokerages, investing platforms and more. Fees can be a major hassle, especially when there are so many different types of fees imposed on every transaction.
However, for crowdfunding platforms in Singapore, there tends to be just 1 fee involved, and that is the investor service fee, which is usually charged on top of the interest earned by the investor.
Most crowdfunding platforms in Singapore come with investor service fees which are associated with investing in a campaign on the platform. They are usually in the range of 15% to 20% of interest earned. There are also notable exceptions, such as the platform KapitalBoost, which imposes a 0% investor service fee.
2. Typical Returns
Of course, the main focal point of most investors would be the returns on investment, which determines the amount of money you can make from diving into these opportunities on the crowdfunding platforms available.
An investor’s return is usually defined as: Repayments received / funds received - service fee - default amount.
As many crowdfunding platforms support early or late-stage startups and local SMEs, investors may be concerned about the returns which you would be able to receive. This is a factor which can vary greatly from platform to platform, and also from campaign to campaign. Although the crux ultimately lies in the company which you are investing in, certain platforms do tend to boast a higher than average rate of return. The average rate of return of each platform is commonly listed on the platform’s websites.
As for the default amount, a decisive factor would be the crowdfunding platform’s average default rate. Due to the fact that crowdfunding platforms are different from the typical online brokerages which allow you to invest in stocks, equities and more from global listed companies, many crowdfunding platforms offer investment opportunities with smaller ventures such as startups and SMEs. There is a possibility of the companies defaulting, resulting in non-repayment, which could cause investors to lose their money.
3. Minimum Investment Required
For many crowdfunding platforms, a minimum investment is required per campaign. This would be another crucial factor to consider, as not every investor, especially beginners, are willing to invest a large sum of money per campaign.
Fortunately, there are many crowdfunding platforms which allow investors to start their investment journey with a minimum amount that could range from as low as $20. This greatly raises the accessibility of these platforms to a greater group of investors, and ensures that anyone could invest if they wanted to. However, other platforms require investors to be accredited, with annual income and net assets requirements, together with a high minimum investment requirement, of up to $5,000. These factors would make it harder for the masses to invest with these platforms.
4. Investment Horizon
Are you a short-term or long-term investor? If you are looking at investments in the short run, we have good news for you. Crowdfunding platforms typically offer more short-term investors, with horizons of approximately 1 year. However, there are also platforms which have shorter or longer investment horizons, and you can feel free to take your pick depending on your preferences.
With crowdfunding platforms offering shorter investment horizons, they could be suitable for investors who want to diversify their portfolio and park their funds in a different investment opportunity for a relatively short period of time.
How Do Singapore Crowdfunding Platforms Fare?
With that being said, the 5 factors as above are indeed critical factors that crowdfunding investors should keep in mind. In the table below, we illustrate the factors and compare 3 of the best crowdfunding platforms in Singapore for your visual reference.
|Investor Service Fee (Of Interest Earned)||18%||15%||None|
|Typical Returns||4 - 8% p.a.||4 - 8% p.a.||15 - 24% p.a.|
|Min Investment Requirement||S$20||S$500||S$500|
|Investment Horizon||1-12 months||1-12 months||1-12 months|
Who Should Invest In Crowdfunding?
Having gone through all the above key factors, who is crowdfunding best suited for? Well, everyone and anyone can invest with crowdfunding platforms while showing some support for enterprises in Singapore. However, investing with crowdfunding platforms may be particularly suitable for certain groups of people.
1. Investors With Well-Diversified Portfolio
As investing in crowdfunding platforms poses a risk of default, it could be a risky choice for investors to invest all their savings into the enterprises on crowdfunding platforms. Hence, investing in crowdfunding platforms would be more ideal for seasoned investors who already have a well-diversified and risk-mitigated portfolio to try their hand in crowdfunding investing.
2. Investors Investing Short-Term And Small Amounts
If you are not a seasoned investor but would still like to try your hand in crowdfunding platforms and investing, it is still possible, especially if you go for platforms which offer low fees and a shorter investment horizon. If you would like to cut down on your risks, investing a small amount with platforms that impose a low minimum investment requirement, such as $20, could be a wise choice. Investing an amount which you can afford to lose, on platforms with shorter horizons and with low to even no fees, could help you to cut your losses should you face any. At the same time, you could also gain some exposure to the world of crowdfunding and have some experience so that investing in them in the future would be a breeze.
Want To Invest With Crowdfunding Platforms?
Now that you are more familiar with the basics of crowdfunding, it is perhaps time for you to start your journey by applying for an account with a crowdfunding platform. Not sure which platform to use? Read on for some of our top picks!
Best For Short-Term Investing
If you want to embark on your crowdfunding investment journey but are not sure where to start, Minterest could be a good place. The crowdfunding platform offers a variety of investment opportunities for individuals, at low fees, which makes it one of the best options for crowdfunding investors in Singapore. Most of its crowdsourced loans have lower than average default rates, making them one of the more secure platforms as well.
Hence, if you are an individual investor seeking some short-term investment opportunities, Minterest could well be worth your consideration.
Strongest Asset Quality
2. Funding Societies
Funding Societies proves to be one of the best crowdfunding platform options available in Singapore, mostly due to its strong asset quality. For investors looking out for secure platforms, Funding Societies is the choice for you. With an approximate default rate of 1.36% and 90% on-time repayments, this platform is unmatched in terms of their asset quality.
It also offers impressive rates of returns over the recent few years, making it stand out as a strong contender in the crowdfunding platform market.
Best For Those Seeking No Service Fees & Competitive Returns
KapitalBoost is a recommended crowdfunding platform for investors in Singapore as it offers investors an opportunity to invest with 0% service fees, making it the only such platform in Singapore with no fees associated with it. Those who are seeking short-term investments with competitive annual returns of 15-24% p.a. should definitely consider KapitalBoost.
Now that we know more about the various features of crowdfunding platforms, we are more equipped with the knowledge to perform comparisons and choose the best platform that is most suited to our needs. For a more comprehensive review of all the options available in Singapore, head over to Best P2P & Crowdfunding Platforms for an overview so you can evaluate the platforms and embark on your journey as a crowdfunding investor today.