Investors are now spoilt for choice. There are now 6 live crowdfunding campaigns, with annualized effective returns of 16 to 24%. Loan size ranges from S$35k to $200k and loan term from 3 months to 12 months. Businesses including the dull and boring school bookshops, to the roller-coaster oil & gas or up-and-coming mobile software startup. With Singapore potentially heading into a technical recession, which crowdfunding loans should investors choose?
First let us have a quick review of each of the live campaign…
School Bookshop ($35k loan, 12-mth equal repayment, 16%)
Background: Retailer of books, school uniform and stationery. Borrower has 11 book shops in 11 schools.
Purpose of loan: Working Capital
Risks: Increase of students on financial aid put a strain on cashflow.
Mitigating factors: Stable monopoly in schools. Small loan amount.
[Note: Funding Societies presents investor’s net return as a flat rate of 8.9%. LetsCrowdSmarter re-computes the annualized effective return to be 16%, so that the rate can be compared easily with MoolahSense’s and CapitalMatch’s loans. Please refer to previous blogpost for more details on investor’s rate of return.]
Food Company ($100k loan, 12-mth equal repayment, 21.2%)
Background: Borrower is a manufacturer, distributor and retailer of food product. They manufacture frozen, fresh & processed seafood such as quality foochow fish ball, otah-otah, ngoh hiang, prawn dates, spring roll, fish ball, fried wanton, mini ngoh hiang, prawn roll, etc. They supply mainly to the local market, food factory and restaurants in Singapore.
Loan Purpose: Working Capital
Risk: higher labour costs, Exchange rate risk from sales to Malaysia
Mitigating factors: Established company with long history, large number of customers, stable industry.
[Note: Funding Societies presents investor’s net return as a flat rate of 11.87%. LetsCrowdSmarter re-computes its annualized effective return to be 21.2%, so that the rate can be compared easily with MoolahSense’s and CapitalMatch’s loans. Please refer to previous blogpost for more details on investor’s rate of return.]
Construction Company – CM00027 ($200k loan, 12-mth equal repayment, 23.04%)
Background: Company, set up in 2001 by a father-son team (with 50 and 22 years of experience, respectively), is in building of all types of landed properties: Terraced houses, semi-detached and bungalows
Loan Purpose: Working capital
Risks: Slowdown in Singapore property. Large loss of $1.5m in 2013.
Mitigating factors: experienced management, deals with end-clients, personal guarantees
ScanTech Marine (S$240k loan, 6-mth bullet, 18% max)
Background: ScanTech Marine specialize in the offshore and marine industry, providing a whole spectrum of services such as fabrication of pipes, repair and installation of marine cranes, corrosion prevention services, etc.
Loan Purpose: Funding to purchase materials for new projects
Risks: Downturn in the oil & gas globally; delay in payments from customers
Mitigating factors: Long history, Short loan duration
Olive Green ($100k loan, 3-mth bullet, 21% max)
Background: Company was established in 2005 in China and 2008 in Singapore to bring corn starch based, eco-friendly packaging and disposable products at competitive prices to the market. It supplies to both large supermarket and small shops as well as acting as an OEM.
Loan Purpose: Expansion of new products
Risks: loss-making (and negative equity) in 2013, broke even only in 2014. Short track record
Mitigating factors: Niche business, Short loan duration
Axserpro Marketing ($100k loan, 12-mth equal repayment, 24%)
Background: Service provider in the areas of mobile applications, marketing and advertising, and ERP solutions.
Loan Purpose: Funds for marketing of a new software product
Risks: Slowdown in service renewals
Mitigating factors: experienced founder, large base of customers, diversified revenue sources.
Let’s Crowd Smarter’s Picks
For the conservative investor: School Bookshop (by Funding Societies) looks the most interesting. Stable monopoly in each of the 11 schools in terms of school uniform, books and stationery. Sales to students with financial aid is also a captive business with low credit risk. Loan amount is small at S$35k. If company defaults, chasing the loan from director unlikely to be difficult. Decent return at 16% annualized effective rate (or 9% flat rate), reasonable return for the lower risk. In addition, Funding Societies platform should has lower counterparty risk due to usage of trustee agency.
For the aggressive investor: Olive Green (by Moolah Sense) looks possible. Company provides corn starch-based bioplastic tableware, carrier bags and packaging. Its products are stocked in supermarket in Singapore. Company’s financials are weak – but that is unsurprising for a start-up. Broke even in 2014 and cashflow from operations turned positive. Loan of $110k is for expansion of new products. The risks are mitigated by short loan duration (3 months) and 300k of receivables to be collected in next 60 days.
Do also watch out for companies operating in industries that heading into down-cycles!
ScanTech – Oil & gas industry badly impacted by the halving of crude oil prices
Construction Company (by Capital Match) – Singapore property sector looking gloomier due to a weaker economy, tighter immigration policies and higher interest rates.
Disclaimer: The author is not affiliated with crowdfunding platform companies and borrowing companies. However, he may be an investor in crowdfunding campaigns. Information provided may are obtained from external sources and may contain views by the author. Crowdfunding as investing may not be suitable for everyone. No financial advice or recommendation is provided. Caveat Emptor.