3 Key Things to Know About Crowdfunding

#1 Crowdfunding takes time

Crowdfunding mainly has three different steps, namely; loan sourcing, loan approval and fund sourcing.

The relationship manager will go out and source for loans from his personal network. Once he finds a suitable loan, he will draft the credit proposal to apply for loan. The credit risk department will then process the loan application. When the loan is approved, the fund manager will go through their personal network to source for investors. In some cases, investors can invest through the platform where the campaigns are posted.

#2 Crowdfunding is more expensive and lucrative at the same time

Unlike the banks, Crowdfunding platforms often offer higher interest rates due to additional risk undertaken. As a result, most SME business owners will go to the bank for business financing as much as possible. Some SME business owners may be advised by loan brokers to go to Crowdfunding platforms if the company already have existing bank loan(s).

For the investors, this may be a new form of investment that was previously owned by the more privileged and banks. With an average monthly return of 1-2%, investing in Crowdfunding campaigns has proved to be a strong and reliable tool to accumulate wealth. This is grabbing the attention of the public.

#3 Crowdfunding got no risk at all?

Every investment has its risk. Investing in campaigns is no exception. Hence it involves cautious planning and good judgement. Most investors are looking beyond the return and quantum. Most of them are looking for Crowdfunding companies that have the investors’ interests in mind and willing to go beyond their way to ensure no default or delay on the repayment. Some of the leading Crowdfunding platforms like CapMarket and Funding societies are more cautious when it comes to approving the loans.

“If its our own money, we can be more relax on our criteria but this is our investors’ money. We should feel a strong obligation towards the investors as they have placed their trust in us.”——– Melvin Ho, CEO and co-founder of CapMarket

Conclusion

Investing in Crowdfunding campaigns definitely can be a good way to accumulate wealth. It is an alternative investment for many people apart from debt and equity instruments. Similar to stocks, it is also investing in the company, but investors get a closer look at the company and management. When you invest in company shares, you are investing in the company value at a point in time. Investing in Crowdfunding campaigns is different. You get a promised return after a period of time. However, it is also important to invest through companies that are dedicated to ensure that each and every loan are fully repaid on time.

Written by Lucus Lim, Business Associate @capmarket

 

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