Investing into Property-Backed Secured Crowdfunding
Debt crowdfunding is a concept where borrowers (usually SMEs) approach a crowdfunding platform for loans funded by a pool of investors. Investors earn interest, paid by borrowers, as returns on their investment. Investments are open to individuals as well as corporations and institutions with a minimum amount as low as SGD 50 for smaller loans.
Funding Societies, licensed and leading crowdfunding platform in Southeast Asia, backed by SoftBank Ventures Korea and Sequoia Capital, has recently introduced Property-Backed Secured Loans to its pool of more than 50,000 investors, providing them with more diversification opportunities. This is the third product Funding Societies has introduced after Business Term Loans and Invoice Financing.
What Are Property-Backed Secured Loans?
Property-Backed Secured Loans are loans taken by companies who have pledged a local property as a form of collateral against the loan. The pledged local properties can be owned by the companies and/or directors of the companies, and can be residential, commercial or industrial. Loan amount is capped at 70% of the property value as determined by independent valuers.
As an investor, you can start investing from SGD 1,000 in this secured crowdfunding product.
Why should you be excited about this product?
It is secured by property as a collateral: Funding Societies takes the first charge on the property. In the event that the property needs to be liquidated to repay the loan, Funding Societies will have the first right to access the cash after it is auctioned. Given the 70% Loan to Property Value (LTV), there is enough buffer against fluctuations in market prices that result in properties being devalued.
- It’s a short-term investment: Loan tenors typically range from 1 to 12 months.
- Fair returns for a lower-risk product: You can get up to 8% p.a. returns on your investment.
- Additional Diversification: Existing crowdfunding investors now have a secured loan product to further diversify their portfolios. New investors who have not invested in crowdfunding can take this opportunity to start investing.
What happens when a borrower misses out on repayments
For repayments, Funding Societies will liaise with borrowers on behalf of investors for collections. If the loan reaches default (defined as 90 days past payment due date), Funding Societies will pursue legally to auction the collateralized property. Proceeds from the auction will be used to repay the investors and any excess will be returned to the owners of the property.
In the rare scenario where proceeds from the auction are insufficient to repay the loan, Personal Guarantors (usually Directors of the company) and the borrowing company will be liable for the outstanding due.
TL;DR (Too Long; Didn’t Read)
Given that there is collateral security in the form of a property, Property-Backed Secured Loans are generally lower risk compared to other crowdfunding investment products.
For those with a lower risk appetite but still want to potentially earn a return of up to 8%, the Property-Backed Secured Loan is a product for you to diversify your portfolio in.